Having bad credit is not the end of the world. It’s estimated that one in five people have a poor FICO score. It doesn’t mean that you cannot get a loan, it just means that you are going to pay a higher interest rate and not get the prime deals that you see advertised. Depending on where your score falls, your time on the job, the amount of household income, and other factors, it will determine what kind of loan you can obtain. When going to get a loan with less than a perfect credit history, here are six tips to consider:
1. Never Take The First Approval
Don’t become desperate. If you get one approval, it doesn’t mean that you should take it. Know your score and what you should be able to obtain. Don’t be railroaded into a loan that you can’t afford and that requires you to pay three or four times the value of the car. You can expect to pay higher interest, but you don’t have to be taken to the cleaners to have transportation.
2. Gather Your Documentation
Once you get an approval, you are going to need plenty of documentation. Bad credit loans are different than a traditional loan. These loan use lenders that are taking a big chance. You will have to pay for this chance dearly. However, they need some assurances. Paystubs are usually all that is required for a loan, and for the person with a higher score, they won’t even need those. When your score is below 625, you are going to need the following:
•Utility Bill or Other Proof of Address
•References Not Relatives
•Proof of Insurance
•Lease or Mortgage Statements
•A Sizable Down payment
•Checking or Savings Account Statements
•Any Other Documentation They Ask For
3. Find A Place To Let You Haggle On Price
One problem with alternative financing is they want to set the price of the vehicle, and they don’t want to negotiate at all. They know how much mileage they need and how much they need to get out of the car. Don’t let them fool you that there is no negotiation. Never take the word of a salesperson, and always try to negotiate a better deal.
4. Don’t Let Every Lender Pull Your Credit
When you’re dealing with a credit score that is already low, you don’t want to have a bunch of hard inquiries on your report to drag it down further. Before you hand out your social security number, tell them where your score is at, and any outstanding problems that can prohibit you from obtaining a loan. It may be advisable to get a copy of your credit report to show to dealers. You don’t want to have tons of lenders pulling your report and giving you similar answers. It’s a waste of credit points.
5. Make A Big Down Payment
Some lenders will require $300-$500 down, while others will request 20 percent. Regardless of what they ask, try to have a larger deposit to put down on the vehicle. Not only does a more significant down payment means a smaller monthly payment, but you will avoid interest and get the car paid off quicker.
6. Be A Savvy Shopper
Just because life has handed you a blow doesn’t mean that you must pay excessively. If the deal doesn’t sound or feel good to you, then move along. Do some research on the vehicles and their value. You never want to be in an upside-down situation where you cannot get out without adding the payment to another loan. After paying on this loan faithfully for about two years, you should be able to get a traditional loan without any problems.
Use an auto loan as a tool to improve your credit. Make sure to always make the payments on time, and never get behind again. After you mess up an alternative lending loan, it will be tough to get someone to take a chance on you again.