Taking out an auto loan with bad credit requires extra attention and care. Although you can easily get one these days despite having dull credit, you will still encounter problems and the challenge of making important decisions during the process. Keep in mind the following pieces of advice as you apply for a bad credit auto loan.
- Keep your job for at least a couple of years before applying for a car loan. One of the things that auto lenders are most concerned about when you have bad credit is employment stability. Your chances of getting approved for an auto loan is reduced when lenders see that you have just shifted jobs recently or have been doing so in short intervals for the past few months or years.
- Pay down some debt. It boosts your credit. Finance experts suggest prioritizing loans with the biggest interest payments. Lenders would like to see less debt load compared with your income. This is called debt-to-income ratio or DTI. It is one of the factors lenders consider in making loan decisions.
- How long have you been staying in that apartment or house? Lenders prefer stable residence. So, you should have lived in your current Denver home for at least 6 months before applying for a car loan.
- Don’t close your oldest credit accounts. They make your credit history longer, which lenders want to see.
- A car loan is not a trap where your credit could get worse. It is in fact an opportunity for you to fix your credit. But a car loan can become a trap indeed if there is lack of preparation and know-how on the part of the borrower. Before taking out a bad credit auto loan, be sure to read a lot about auto loans and bad credit, then plan ahead. It will also help if you save a considerable amount of money for the down payment.
- Dispute errors in your credit report. Credit bureaus, including the most trusted ones, can make mistakes in keeping records of your credit accounts. That’s why it’s important to get a copy of your credit report several months before applying for a car loan. You need enough time to examine your credit report, find errors, dispute them and for the necessary changes to be made. Errors can weaken your credit so get rid of them as soon as you find them in your credit report.
- Consider improving your credit first before applying for a car loan. Although you can get approved for a car loan even with bad credit, you can get lower rates when you have a higher credit score or better credit history. If the car purchase is not urgent, consider delaying it first to spend some time working on your credit.
- Refrain from buying nice, expensive cars. Keep in mind that your car loan is supposed to help you obtain better credit. It can be a problem if you opt to finance a pricey car with damaged credit. Some lenders may deny you an auto loan when they see the contrast between your credit and your car choice. Buy a cheaper car for now so you will be able to get a great financing deal for your dream car in the next few years when you have much better credit.