Yes you can! However, your choices will be a bit limited and you have to put up with higher interest rates and a few other minor inconveniences. Below is a discussion on the realities of a bad credit auto loan. Tips and techniques to maximize your credit will also be discussed.
Don’t Take the Word of the Lender
Most lenders will overstate how bad your credit report and scores are. Pull out your own reports and know the usual interest rates applicable. There are plenty of websites that have free auto loan calculators and relevant auto loan articles. Tip: Pull out free credit reports if possible. Remember you get 1 free report per year under federal law. In some states the consumer gets another free copy.
Scores and Rates
The most accepted scoring method is known as the FICO score. It was developed by Fair Isaac Corporation and utilizes 5 categories to rate a consumer as a potentially good payer or bad payer. As a general rule credit scores are ranged from excellent to bad. For example:
- 720 – 850 Excellent
- 690 – 719 Good
- 660 – 689 Above average
- 620 – 659 Average
- 590 – 619 Below Average
- 500 – 589 BAD
Applicable Interest Rates
The rates will vary depending on the amount of loan, number of payments, type of automobile purchased, brand new or used, etc. However the DIFFERENCE between the best type of credit and the worst can be as much as 5% to 8%. For example, Mr. A has excellent credit, the interest rate applicable is 3.68%. Mr. B has bad credit. The applicable bad credit auto loan rate is 11.92%.
Maximize Your Score
If possible you want at least 3 to 4 months to fix your credit report and scores. However if you do not have the time, you can undergo emergency rescoring for a price. This may add a few points to your score in a matter of 3 to 7 days.
Shop Around for Lenders
Shop around within the span of 1 to 2 weeks. This way all the hard inquiries you accumulate will be counted as only 1. Tip: bring your own reports and show it to the lender. If they pull your reports and scores, ask for a copy of the same.
Lower the Total Amount of Debt
The lower the loan amount the bigger your chances of getting approval on a bad credit auto loan. This usually means you pay for a higher down payment. If you have a few months to spare, try to arrange for an installment basis down payment. At the very least you want to go beyond the usual 10%. 25% to 50% is your best bet.
Avoid Going Subprime
Subprime lenders may allow you to apply and get an auto loan even with the worst credit scores, but the rates are just too high. There have been instances wherein the subprime rates go as high as 20% or more. Remember, if your only choice is subprime, then you’d better wait a few more months and build up your scores and down payment.