When you buy a car and have bad credit, your interest rate is likely going to be higher than average. This increases the overall cost of the loan, but you don’t have to settle for the first deal you’re offered. You can rate shop and find the best deal available, or even take steps toward getting a better interest rate before you shop for a vehicle.
Step 1: Prepare before You Rate Shop
Before you begin rate shopping, you need to know where your credit score currently stands and what’s on your credit reports. Most lenders look at your FICO score, and many credit card companies, banks, and credit unions offer a free FICO check. If you don't have access, you can pay a small fee to get it from FICO or the credit bureaus.
As for your credit reports, you’re entitled to a free copy every 12 months from each of the three major credit bureaus – Experian, Equifax, and TransUnion. These can be request at www.annualcreditreport.com.
Make sure all accounts and information listed on your credit reports is correct and up to date. If anything is inaccurate, you need to dispute it to the reporting credit bureau(s) as soon as possible to get it removed..
You should also research the current interest rate trends. Look to see what consumers in your credit score range are qualifying for, and understand what determines your interest rate. This way, you can get a better idea for the approximate rate you can expect when you shop around.
Step 2: Try to Get Pre-Approved
Once you know your credit situation, you can move forward in the rate shopping process. The first thing you need to do is try to get pre-approved with your bank or credit union – regardless of your credit situation.
If you have a good relationship with your financial institution, it’s possible they may offer you a pre-approval for an auto loan at a competitive interest rate for your credit score.
However, it should be noted that it may be more difficult to get approved if you have poor credit. If they turn you down, at least you know that you need to look elsewhere for financing, and that’s OK, because there are other options out there.
Step 3: Rate Shop and Compare
Step three is to do some rate shopping. When rate shopping, you’re given a specific time frame to apply with multiple lenders for the same type of loan so you can find the best deal.
You typically need to decide on a deal in 14 days. If you keep within the shopping window, all hard inquiries made only count against your credit score as one single hard inquiry. If you shop outside of the window, your credit score can be much more negatively impacted by all of the hard inquiries.
When rate shopping, make sure you get quotes from at least two different lenders so you can compare them side by side. Don’t jump into the first offer you get – take the time to look around and pick the right deal for you. If every lender turns you down, it’s time for step four.
Need Help Getting a Car Loan?
Seems fairly straightforward, right? Well, when you have bad credit, it isn’t always easy to rate shop for a car loan. The key is to work with the right lender, and finding a special finance dealership that works with subprime lenders is a challenge on its own. Luckily, The Car Connection is here to make your auto financing journey easier.
We work with dealers all across the country that are ready to help credit-challenged car buyers. We want to connect you to a local dealership that can help you get back behind the wheel. Start today by filling out our simple auto loan request form.