So you’ve missed a few bill payments along the way, or maybe you don’t have much of a credit history. There are a lot of reasons why a consumer shopping for a car might have weak credit. But a low credit score shouldn’t keep you from getting a new set of wheels. In fact, taking out an automotive loan can actually help you build or rebuild your credit over time. Ride Approval in Alberta, Canada can help you get the best rate and terms on your next auto loan, even if you have poor credit. Here’s what you need to know about bad credit car finance.
What Minimum Credit Score Do I Need to Get a Car Loan?
Having a low credit score probably won’t keep you from getting a car loan, although it could mean that the loan you get has a higher interest rate or less favorable terms. You also might have fewer lenders to choose from if you have a lower credit score. Having a credit score of 700 or above is often considered optimal for consumers who want to borrow money to purchase a new car.
However, there really is no magic minimum credit score that you need to hit. Each lender is different and has different requirements, and we’re able to find borrowing options for customers with all types of credit histories.
Why Are Borrowers With Low Credit Scores Penalized?
Borrowers with lower credit scores are considered by lenders to be a greater credit risk. In other words, lenders fear those consumers won’t repay the money they’ve borrowed. To compensate for the risk they take on by lending to consumers with lower credit scores, lenders usually charge them higher interest rates.
Why You Should Know Your Credit Score
It’s a good idea to check your credit score before you start shopping for a vehicle so that you know what dealers will see once you enter the loan approval process. There are a number of websites that help you check your credit score for free.
How Will an Auto Loan Rebuild My Credit?
An auto loan can improve your credit in several ways. First, as long as you make all of your payments on time and in full, the process of paying off your loan will help establish your credit history while also showing lenders that you can responsibly pay off the amount you borrowed.
A car loan will also help diversify the types of credit you hold. Holding a mix of revolving credit, such as credit cards that allow you to carry a balance, and installment credit—like car loans that require you to make a fixed monthly payment—can improve your credit score.
What Else Should I Know About Bad Credit Car Finance?
If you have poor credit, you still have options when it comes to shopping for a car. Saving up for a down payment, having a co-signer, and shopping around more carefully for a loan are all avenues you can pursue.
Spend Time Working on Your Credit
If you’re able to wait on your car purchase, you could always spend a few months working on improving your credit score. Regularly paying your bills on time and whittling down your total amount of credit card debt and other debt are two steps you can take to improve your credit score. If you hold off on purchasing the car for six months or a year, and spend that time, instead, focusing on improving your credit, you’ll likely have better car loan options.
Work Towards a Down Payment
If you can pay more towards the vehicle upfront, reducing the amount you have to borrow, you’ll likely be able to get a car loan with better terms. This is another scenario where postponing your vehicle purchase for six months to a year may give you time to save up and secure a better loan for your purchase.
Find a Co-signer
A co-signer is someone who applies for a car loan with you and pays off the loan in the event that you are unable to keep up with payments. A co-signer could be a spouse, a parent, or a friend, and should have a higher credit score than you. Having a co-signer in place will allow the primary borrower to get a loan with lower interest rates and better terms. Lining up a co-signer is a good option for borrowers who can’t postpone a car purchase while they work to shore up their credit.
If you haven’t found a car loan that works for you, keep looking. There are lots of lenders out there, and sometimes it’s just a matter of knowing where to look. We can help with this process.
How Can I Improve My Credit?
There are a number of steps you can take to improve your credit.
Pay Bills on Time
Paying your bills on time — not just some bills, but every single one — is one of the single most important steps you can take to improve your credit. If possible, make sure you have at least 12 months of on-time payments before applying for an auto loan.
Pay Down Outstanding Debt
Lenders will also evaluate your credit utilization ratio, or the amount of credit you’re using relative to your total credit limits. Paying down even a portion of your debt can go a long way toward improving your credit score.
Keep Credit Accounts Open
Closing a credit account, even if it’s an account you never use, will lower the total amount of credit available to you and raise your credit utilization ratio. If you’re anxious to close out an old credit card account — particularly one that you’re paying an annual fee on — try to hold off on doing so until after you’ve gotten your car loan.
Hold Off on Other Loan Applications
When you apply for a new loan or take on other new forms of debt, your credit scores usually dip. If possible, don’t open any new lines of credit until after you’ve purchased your car.
Review Your Credit Report for Inaccuracy
It’s a good idea to review your credit report occasionally to make sure there aren’t errors on it. Credit bureaus must investigate claims of inaccurate information and then either validate, update, or delete the inaccurate information. Ridding your credit report of inaccurate information is another way of improving your score.
Consider Consolidating Debt
If your credit card balances are high enough that you’re struggling to pay them down, you might consider applying for a debt consolidation loan, or a loan that gives you the money to pay off those high balances. Personal loans often charge lower interest rates than credit cards, so this may be a less expensive way of paying down your debt. And because personal loans don’t always impact your utilization rate, shifting your debt to this type of loan could help your credit score.
Why Choose Our Service
Do you have poor credit? Are you struggling to find a car loan that you can afford? When it comes to bad credit car finance, we can help you fight back. We’ll process your loan application for free and work with lenders to find the best automotive loan for you. We can quickly find you financing options — often within hours — and we work with customers with all credit situations. Call Ride Approval in Alberta, Canada today.