Need a new vehicle and concerned about your credit score?
What Are your options?
How to Buy a Car With Low or No Credit
If your credit score is less than perfect, paying cash or finding someone to cosign can help you land the car you want.
Since our economy has improved in many parts of the country, auto lenders have expanded access to financing. That’s the good news. The not-so-good side is, if you have credit problems, you’ll often pay a premium for financing to cover the lender’s heightened risk just as you would with other loan like a mortgage. Folks with no credit or credit issues with a FICO score of 660 or lower you are considered a subprime borrower . Same is true if you’ve had a bankruptcy within the last five years or your debt-to-income ratio is 50 percent or higher.
Unfortunately even errors on your credit report could result in a higher interest rate or even a denied loan application, make sure and check your credit report and dispute any abnormalities.
A Federal Trade Commission study showed that 5 percent of American consumers have mistakes on their credit reports that could result in paying more for auto loans or insurance.
For people without errors on their credit report, those issues can cost money. Kelly Blue Book executive noted that “If the going rate was 4 percent for somebody with good credit, then somebody with challenged credit might be paying a third more,”
Here’s a look at options for people with credit issues:
1. Pay cash. If you are able to save up enough money to pay for a car in cash, you’ll avoid all the money issues that could damage your credit or lead to repossession further damaging your credit. Keep in mind that if you are a credit-challenged person taking on a car loan, you could sign up for something that’s beyond your means and can just be a further financial troubles. This isn’t a realistic option for everyone, but if you can make it work, you’ll also avoid the higher interest charges you may be offered due to credit issues.
2. Consider the length of the loan. If it turns out that you need to finance a car, be sure to set a monthly payment that isn’t going to stretch your budget too far and balance that with the length of the loan. Longer auto loans – some borrowers finance a car for six years or longer – this means you could be underwater for a major portion of the loan, owing more than the vehicle is worth due to depreciation. You will also pay more in interest over the term of the loan, however you will have lower monthly payments too. Be aware that a subprime creditors may require a you to take a shorter-term loan in an effort to reduce their risk exposure.
3. Shop around for financing. Don’t think that with less than perfect credit, your only option is a car lot willing to finance you at a very high rate. Before you go into a dealership, check with your local bank or credit union. Do you have an existing relationship with a credit union? Because these are member-only smaller financial cooperatives, they tend to be a bit more flexible in their willingness to listen to your story. In many cases the underwriting is being done locally, not by some big corporation that doesn’t understand the local culture and circumstances. If denied your options can change in a few months, especially if you were previously out of work.
4. Get a cosigner. If someone like a spouse or parent is willing to cosign your auto loan. A cosigner really helps because it gives the lender options in recovery that are beyond the person with bad credit.
5. Find a “buy here, pay here” dealer. (Highway Motors) If all else fails and you really need a set of wheels, a “buy here, pay here” dealer may be your last stop. “Buy here, pay here” dealers are typically independent dealers that underwrite the loan themselves at a higher than prime interest rate, and most have borrowers drop off payment rather than wait for a check in the mail. “You can take delivery of the car, but you’re going to have to drop off payments on a regular basis, hence the name “Buy Here Pay Here “.
Highway Motors in Chico has created a program that is most convenient to their customers. They offer online payments, call in payments or automatic payments to help their customers that find it difficult to drop of payments as is the case at a traditional Buy Here Pay Here dealership.
Highway Motors Chico CA