You see the ads all the time: “Bad credit? No Credit? No Problem!” But what does this really mean? Are these scams? Can you really get a car loan with bad credit? And, how do you know where to find bad credit car loans that aren’t scams?
What Is Bad Credit?
Check your credit score before you assume you need to apply for bad credit car loans. You might be in for a pleasant surprise. FICO credit scores are ranked on a scale from 300 to 850 points. The higher the number, the more creditworthy lenders will perceive you to be.
The average American credit score hovers right around 687. Scores ranging between 850 and 750 are considered “excellent”, 700 to 749 is considered “good”, 650 to 699 is considered “fair” and anything under 649 is “bad.”
Why Does It Matter?
While social media “likes” have become a pervasive force in modern society, your credit score is probably the most important “like” in your life. After all, it’s a strong determining factor in the overall quality of life you’ll enjoy.
If your score falls within the “excellent” range, you’ll easily qualify for any loan falling within your ability to repay. You’ll get the best terms, the most perks and the lowest interest rates available.
Yes, you can still get loans if you’re at the other end of the spectrum. But you’ll pay more in interest, you’ll find fewer perks coming your way and you’ll have to work harder to make yourself attractive to a lender.
How to Check Your Credit Score
By law, you’re entitled to one free copy of your credit report from each of the three reporting agencies (Experian, Equifax and TransUnion) every 12 months. You can order them online from annualcreditreport.com or phone 877.322.8228. Study the reports carefully for errors. Should you find any, contact the reporting agencies to get them cleared up.
Meanwhile, if everything is copacetic and your score is 700 or better, you’ll be in great shape; go ahead and get that loan. If it isn’t, well, that’s okay too. There are options.
Where to Find Bad Credit Car Loans
You’ll find the best bad credit car loans in pretty much the same places you’ll find good credit car loans. You’ll just have to approach the process differently.
Before you let a low credit score make you approach someone advertising “bad credit” loans, check with smaller local banks and credit unions where you are more likely to be able to talk to a person who will listen to your circumstances and take them into consideration. Online lenders like RoadLoans are typically a bit more forgiving in this regard as well.
Making Your Application More Attractive
You’ll find lenders will be more willing to work with you if you can do one or more of the following:
- Be realistic about what you can afford — If your income will only barely support that flashy luxury car you’re eyeing, let it go until your credit is in better shape. Rather than stretching, go for something you can easily afford. This makes you look more responsible.
- Offer a large down payment — The less risk you ask a lender to assume, the more likely they are to consider you favorably. If you can come up with 20 percent of the price of the car you’re trying to buy (or more) you’ll have a much better shot at having your application looked upon favorably.
- Find a co-signer — Which, again, reduces the amount of risk the lender assumes when choosing to work with you. However, you’re asking a close friend or relative to take that risk instead. You should only do this if you are absolutely, positively, 100 percent certain you can cover the loan. And even then, you should think about it for a while.
When all is said and done, knowing where to find bad credit car loans is a good thing. But it’s an even better thing when you do everything you can to make yourself as attractive as possible to a lender, given your circumstances.