Know your score: Before you go car or car loan shopping, check your credit report. Analyze it for mistakes and get them corrected. If your score is low, work on it for six months before you apply for a loan.
Research: Prepare before you sit down for negotiations. Check out things like Annual Percentage Rate (APR) and the Kelley Blue Book Value in case you’re buying a used car. Lookup auto loan calculators and articles so you can make an informed purchase.
Explore options: Visit multiple lenders and multiple types of lenders that offer car loans to people with bad credit. Don’t draw out the process because credit checks for loan applications cause your score to dip. Explore finance options about three lenders within two weeks.
Pre-qualify: Even if your credit is bad, visit your bank and your credit union. If you can pre-qualify for a loan, you can use that as a negotiating tool. It may be difficult to pre-qualify with bad credit, but it’s possible. This way, you may be able to get an offer with manageable terms.
Finalize terms: Before you sign, ensure all terms you agreed to and negotiated for are final. Otherwise, your monthly payments could be hiked, or you may have to pay a big lump sum in the future. Do not accept higher interest rates and do not sign if the terms aren’t final.
Stay away from subprime lenders: These lenders usually work with people with bad credit. They can make the car buying process feel stress-free. That is until the interest rates go sky-high. And if you can’t make the payment, then they’ll just take your car away. Research all your options.
Loan terms, not monthly payments: Don’t be fooled by lower monthly payments. Look for the lowest APRs over the shortest period of time. That’s the only way you will have manageable monthly payments with a reasonable interest rate. Also, ensure that there are no add-ons that you didn’t request.
Co-signer: Ask a friend or relative you trust to co-sign your loan. You’ll get much better rates that way. But ensure that you can make all your payments; otherwise, the burden of repayment will fall on them.