If you’re looking to purchase a family car but have bad credit, options are still available.
Here are a few tips and tricks to help improve your credit score and give you a better chance at an auto loan despite bad credit to finance a family car:
Try to get a cosigner with good credit.
One of the best ways to improve your chances of getting approved for an auto loan is to get a cosigner with good credit.
A cosigner is someone who agrees to sign the loan with you and be responsible for making the payments if you can’t.
By cosigning, they’re vouching for you and telling the lender that you’re a good bet even if you don’t have a lot of credit history.
So, if you’re having trouble getting approved on your own, see if you can find a friend or family member with good credit willing to cosign for you.
Just make sure you’re prepared to make the payments yourself because if you default, it will jeopardize their credit and yours.
Try to get an auto loan from a credit union.
A credit union auto loan can be a great option if you’re looking for more flexible lending criteria than banks typically offer.
Credit unions are often more willing to work with borrowers who have less-than-perfect credit, and they may offer lower interest rates and monthly payments.
However, comparing offers from multiple lenders before agreeing to a loan is essential, as credit unions typically have higher fees than banks.
But a credit union may be the way to go if you’re looking for a little more flexibility in your auto loan.
Try to negotiate with the dealership.
In any credit situation – good or bad – it’s always beneficial to negotiate with the dealership.
The finance manager at the dealership may be willing to work with you on the interest rate or terms of the loan, depending on your financial situation.
Dealerships are often interested in making a sale more than anything else, so they may be open to negotiating even if you have bad credit.
Worst case scenario, you walk away from the negotiation table without a new car. You also don’t have a new car loan to worry about!
So really, it’s a win-win. Either way, negotiating is always worth a shot – especially when your credit score isn’t perfect.
Make a sizeable down payment
It’s no secret that buying a car is expensive. In addition to the purchase price, taxes, registration fees, and insurance are also to consider.
And if you’re financing the purchase with an auto loan, you’ll also have to make monthly payments until the loan is paid off.
Of course, the size of your monthly payment will depend on the amount of the loan, the interest rate, and the length of the loan term.
But there’s one other factor that can significantly impact your monthly payments: the size of your down payment.
Making a larger down payment will lower your monthly payments for two reasons.
First, it will reduce the amount of money you need to borrow. And second, it will lower the total amount of interest you’ll owe over the life of the loan.
For example, let’s say you’re buying a car for $20,000. If you make a down payment of $4,000 (20%), your monthly payments will be lower than if you only make a down payment of $2,000 (10%).
Over the life of a five-year loan at 4% interest, you would save almost $600 in interest by making a larger down payment.
Of course, making a sizeable down payment is not always easy. But if you can swing it, it’s worth considering – especially if you have bad credit.
Make sure you make all of your payments on time.
Once you’ve landed a loan, even if it’s less than ideal, you can always refinance after you’ve worked on improving your credit.
One way to improve your credit score is by making all car and other debt payments on time.
Punctual payments will show lenders that you’re a responsible borrower and help improve your chances of getting approved for a refinance loan.
So even if the terms of your initial loan aren’t ideal, you can refinance later when your credit is in better shape.
Pay off your loan as soon as possible.
Early payoff of your auto loan has several benefits. For one, it can help improve your credit score.
When you show that you can pay off a loan quickly, it demonstrates responsible financial behavior to future lenders.
Additionally, paying off your loan early will save you money in interest payments.
The longer you take to pay off a loan, the more interest you’ll accrue.
So, if you have the opportunity to pay off your loan early, it’s generally a good idea to do so.
Of course, other factors to consider when deciding to pay off your auto loan early.
But, if all things are equal, paying off your loan sooner rather than later is usually the best option.
Following these tips should help you improve your chances of getting approved for an auto loan and financing a family car.
Remember that you’re working toward a better future for your family, which sometimes means you’ll have to sacrifice ideal circumstances for best-case scenarios.
Family vacations are certainly more enjoyable when the car is large enough to get the whole family to your destination, along with all the things you’ll need to enjoy the vacation.