If you plan to finance your next vehicle, it's important to understand how your credit score may affect your ability to get a loan. While a lower credit score can make it more difficult to secure favorable interest rates, it's still possible to get an auto loan with poor credit. Here's how you can get a car loan with bad credit in Pennsylvania.
Know Your Credit Score
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Your credit score is an important factor in determining the financing terms for an auto loan. It's helpful to know your credit score before you apply for a loan to ensure there are no surprises. You can get a free copy of your credit report every year through one of the three primary credit agencies: TransUnion, Equifax, and Experian.
Once you receive your report, review it carefully to make sure there are no errors or fraudulent activity. If you notice inaccurate information on the report, you can file a dispute by sending a letter to one of the credit bureaus. While it may take up to 45 days to resolve the dispute, taking action to correct your report can lead to a higher credit score, making it easier for you to get a car loan.
If you have a lower credit score than you'd like, consider taking some time to build your credit before applying for an auto loan. You can improve your credit by making scheduled payments and paying down your balances on loans or credit cards. Within six months to one year, you may be able to improve your credit score and qualify for lower interest rates on an auto loan.
Start Saving
If you have a low credit score, typically defined as a score of 600 or lower, plan to save for a down payment to help you qualify for a car loan. Lenders may view your application more favorably if you have a down payment. Some may even require you to have a down payment before they consider your application.
There are other financial benefits to saving for a down payment. When you put more money down on a vehicle, you'll require a lower loan amount, which helps you save money on interest over the span of the loan. Applying for a smaller loan can also help you secure lower interest rates. It's common for lenders to use a loan-to-value ratio, which compares the loan amount with the value of the vehicle, to establish the interest rate on an auto loan.
Get Quotes From Different Lenders
When you're ready to apply for a loan, it's helpful to get quotes from different lenders to find one that can meet your needs and budget. Here are some common lenders you can consider:
- National banks.
- Local banks or credit unions in your community.
- Online lenders that offer auto loans.
- Car dealerships.
When lenders prepare quotes, they will make a credit inquiry to determine the risk of lending money to you. Because multiple inquiries can impact your credit score, make sure you wait to shop for lenders until you're ready to purchase a vehicle. Credit inquiries made within the same time period will only count as a single inquiry. FICO Score counts any inquiries within a 45-day period as a single inquiry, while VantageScore counts multiple inquiries made within 14 days as one inquiry.
Consider a Co-Signer
If you're struggling to get a car loan, consider asking someone you trust, such as a family member, to be a co-signer for you. A co-signer is someone who agrees to be financially responsible for the loan if the borrower doesn't make payments. Often, a co-signer can be a negotiating tool when you're trying to get approved for an auto loan. If your co-signer has good credit, you may even receive better interest rates on a loan.
Before you decide to use a co-signer, have a conversation with the person and make sure they're comfortable joining you on the loan. Explain how you plan to budget effectively to make regular payments to help them feel confident about co-signing the loan. It's also important to check with the lender to make sure they accept co-signers.
Set a Budget
Once you have an idea of the loan terms you may receive, you can use this information to set a budget for a new vehicle. It's helpful to use tools, such as an online loan calculator, to help you find a monthly payment that meets your budget. Plug in your down payment, financing rate, and loan term to see your estimated monthly payment.
When setting your budget, it's also important to factor in other costs besides your loan payment. Other expenses related to a new vehicle purchase may include property taxes, auto insurance, gas, and parking fees. Make sure you establish a budget you can reasonably afford each month, which will help ensure you can make regular payments and improve your credit.
Choose Your Loan
After you've taken these important steps, it's time to choose your loan. Compare different quotes by looking at the loan terms and interest rates. Remember that while a longer loan term may lower your monthly payments, it could mean that you're paying hundreds of dollars more in interest over the span of the loan.
Once you decide on the loan you want, complete an application. If you decide to choose a loan from the dealership, a financial representative will prepare a contract for you to sign. If you choose another lender for your auto loan, follow up with them to finalize the loan terms. Before you sign a contract, read it over carefully to make sure there are no hidden fees or add-ons, such as early payoff penalties or extended warranties.
Get Guaranteed Credit Approval at AutoOne
If you've had trouble getting approved for a car loan in the past, we want to help. AutoOne offers guaranteed credit approval for all applicants, whether you've missed some bills or you're a first-time buyer. Visit our dealership in Lancaster, Pennsylvania, to get your guaranteed approval in 30 minutes or less. Have questions about the process? Contact our dealership to speak with one of our expert auto financial advisers, who can work with you to understand your financing options. We look forward to welcoming you to our Lancaster dealership and helping you get back on the road.