In the United States, credit scores range from 300 to 850, and in July of 2017, the nation seemed to rejoice when FICO reported that the average credit score had reached an all-time high of 700.
For those still struggling to recover from poor credit history, however, this news probably felt like another setback. If you have a low credit score, you are not alone; according to U.S. News, those with scores below 600 still represent about 20% of Americans.
If you fall into this group of consumers, obtaining financing can be difficult, to say the least, but it is not impossible. If you are wondering how to get a car loan with bad credit, take the following three steps to put yourself in the best position for getting your car loan application approved.
1. Find the Right Lender - Not all financial institutions are alike. While there are some federal lending regulations which apply across the board, different lenders have slightly different underwriting guidelines and policies to which they must adhere.
Typically, large institutions and banks have more stringent policies and firm credit score requirements. Credit unions, however, often have more flexibility in their lending policies, and give their lenders more ability to base credit decisions on character. Since they are member-owned, they also typically offer lower interest rates.
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2. Go in with Knowledge and a Plan - All lenders appreciate honesty and can recognize a potential borrower who has done his or her homework.
If you know you have poor credit, do not try to hide it. Be honest and up front about your situation and have a clear plan to present to your lender regarding how you will work to improve your credit, pay unpaid accounts and how you plan to repay your car loan. If you are uncertain about what might be in your credit history, USA.gov recommends obtaining a free report at annualcreditreport.com.
After looking over your credit history, use a car loan calculator to consider different loan terms in order to see what type of car loan will fit into your budget.
3. Equity Is Power - If you have poor credit, you may need to be able to pay some cash up front on your car purchase, in the form of a down payment. Making this down payment will improve your chances of obtaining credit approval.
In addition to making a loan approval less risky for a lender, saving up a substantial down payment also proves that you are capable of budgeting and handling your money responsibly, which is important if your credit report shows otherwise.
If you would like more information about how to get a car with bad credit, low credit or no credit history, contact a loan representative at America's Credit Union today. We can help you understand where you stand financially, work with you to rebuild your credit and help you get your loan request approved.
Related: Pitfalls They Don’t Mention About the Best Car Loans
Sources
- Posted by Ethan Dornhelm in Risk & Compliance. (2017, July 09). US Average FICO Score Hits 700. Retrieved March 01, 2018, from http://www.fico.com/en/blogs/risk-compliance/us-average-fico-score-hits-700-a-milestone-for-consumers/
- Soergel, A. (2017, May 30). America's Shifting Debt Dilemma. Retrieved March 1, 2018, from https://www.usnews.com/news/articles/2017-05-30/credit-scores-hit-all-time-highs-amid-americas-shifting-debt-dilemma
