If you have bad credit, you will most likely get a high interest rate. And that’s normal because it is a rule of thumb in the auto lending business. But there are several ways on how you can get the lowest possible interest rate on a bad credit auto loan. We discussed some of them below.
1) Peruse your credit report.
When you have bad credit, it’s important that you check up on your credit first before undertaking any major financial decision such as taking out an auto loan. This is so that you know where you exactly stand in your credit. It is also the first step to improve your credit.
Once a copy is in hand, take a good look at it and keep an eye out for errors. Errors can unnecessarily make your credit worse. If you find any in your credit report, have it corrected immediately by sending the reporting bureau a letter.
If you get a free copy of your credit report through AnnualCreditReport.com, you will not see your credit score. You will have to purchase it from a credit-scoring company like FICO. While free scores are available online, experts maintain that paid scores give you a closer estimate of the auto loan interest rate you could get.
2) Be intentional in improving your credit.
We at Indianapolis Auto Approval Center recommend fixing your credit first before applying for an auto loan. A better credit will help you get a low interest rate. But this requires enough time and diligence to pursue. That’s why debt advisers suggest checking up on your credit at least six months before applying for any major loan. That’s enough window to examine the credit report, dispute errors, and improve the credit.
3) Approach banks and credit unions first.
You may be thinking that you won’t get approved in banks and credit unions because of your bad credit. But credit standards are easier now. Banks are more willing to finance people with bad credit, while credit unions are ever supportive of their members. If you currently have a relationship with a bank or are a member of a credit union, take advantage of your privileges. Banks can give you a discount for patronizing another product of theirs. Credit unions always have competitive rates exclusive to their members.
It’s not impossible to find the cheapest bad credit auto loan in a bank or credit union these days. Try checking out what these Indy lenders have to offer: Regions Bank, Forum Credit Union, Financial Center Federal Credit Union, and First Internet Bank.
4) Aim to put more money down.
We know that a bigger down payment is hard for some car buyers with bad credit. But it can lower not just your monthly payment but also your interest rate. Lenders may consider giving you a lower interest rate as they see a more creditworthy you with the money you put down.
You can make a bigger down payment in more than a couple of ways. You can save up ahead for this big cash-out, use the trade-in value of your old car, or apply the rebate on the down payment. But in any case, never resort to zero-down auto loans unless you have an excellent credit.