Applying for a Car Loan with Bad Credit

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Unfortunately, having bad credit makes getting a car loan difficult and extremely limits your finance options. When you are shopping for a car, if your credit score range is below 600 you will find that most dealerships will not be able to finance you. They consider your credit rating sub-prime, and most of their zero down, zero percent financing offers you see on television are for those with excellent credit, around the 700+ range. This means if you have bad or poor credit, you probably will not be able to walk into your closest Honda dealership and walk away with a car. Fortunately, with more and more Americans receiving bad credit ratings, there have been more and more sub-prime lenders opening for business, so while you may not qualify for the best deals, all hope is not lost.  Here are a few tips to help you apply for a car loan with bad credit.

First, unless you are applying for an extremely small auto loan (less than $4000) you will probably be looking at buying a new car instead of a used car. I know this may sound strange, buying a new car with bad credit, but in the eyes of the lenders it makes more sense. There are a lot of things that can go wrong with a used car, making them less valuable and therefore harder for the lender to recoup any loss if you default on the car loan. Lenders look at new cars as less of a risk because if you default on the loan within the first year (which is the average time frame) the car will still hold a lot of value and be easier to resell to recover the loss of the loan.

Second, you will absolutely need a down payment. The bigger the down payment the more attractive the loan will look to lenders, you should be prepared to put a down payment of 10-15% if you have a bad credit rating. If you owe $17,000 to the bank, but they own a $20,000 car, they can actually end up better off if you default the loan and they have to repossess your car. In fact most lenders offering bad credit loans guaranteed approval will want a significant down payment.