When Bad Credit Keeps You Out of the Driver’s seat

Written by: David Wilkening

Unless you live in a major city with cheap mass transit, you need a car. It’s far more than an optional purchase. But what if you have to have one not only for your social life but to commute to a job?

And you have no money for a down payment and bad credit?

Does that mean you have to walk to work, no matter how far away?

For starters, check to be sure your credit is so bad you can’t get a loan. Keep in mind that auto loans involve less money over a shorter period of time than, say, a house loan. So the same credit score that might deny you a home loan could be adequate for a car.

Two good sources: AnnualCreditReport.com, and MyFICO.com. Even two candidates with an identical score might not be the same in the eyes of a lender, says John Van Alst, staff attorney for the National Consumer Law Center. “Even if your score is tarnished, you may have a better chance than someone with the same score and no (credit) history,” he said.

When in a bad credit station, perhaps the two things to consider, first, that you don’t end up with higher payments than you can afford. You don’t want worse credit. So stay within a budget and price range for paying for the car.

Second, beware of predatory lenders. How? Research both on line, and check would be lenders for a list of satisfied customers. That should not be difficult to provide.
One common option in this situation: the dealer. If you have to finance through a dealer, make sure the terms are final and not conditional. Unfortunately, it is not uncommon when financing through a dealer, lenders at times find later that their payments have gone up. It’s called a “yo-yo” sale

But if your loan answer is still negative, here are a half-dozen strategies:

  1. Apply at your bank or credit union. Even if you think your credit is bad. You may be wrong. Or try your employer, who may have programs. Or even try your insurance company.
  2. Check out sources known for auto loans, rather than lenders known for catering to low-credit clients. This can include name brand national banks, local and regional banks, and well-known online lenders.
  3. Set realistic expectations. If you can find a loan, be prepared to accept a high interest rate and, if necessary, expect a large down payment (at least 10% is likely).
  4. Prepare a budget. Yes, simple, but then you know exactly what you can afford to pay per month. That will avoid getting into an even worse credit situation.
  5. Look into those places claiming auto financing for bad credit. Some of these will gouge you but credit unions and dealerships (some of them, anyway) have various offers. Try also sub-prime lenders who often specialize in customers with damaged credit. They can often provide an answer within minutes. See above for warnings.
  6. Get a friend or relative willing to give you money at a low interest rate. He or she can co-sign to help you obtain a loan. Hopefully, this may be your best answer  –   for a relatively painless and complication-free repayment of your loan, anyway. ###

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