Bouncing back financially after a layoff, sudden house repair, or medical emergency is certainly no easy task. However, millions of Americans overcome their past financial struggles, climb out of the hole, and repair their bad credit scores each year. How? For some, the secret to improving their credit is simple: finance a new car.
You may wonder if it’s even possible to get approved for a car loan with really bad credit. Whether you are barely rocking a score of 400 or haven’t even established a score yet, we’re here to tell you that financing a vehicle is not just possible – sometimes it’s actually the best way to pump up those numbers. Here are some tips to help you find and make the most of a bad-credit auto loan.
Expect High Interest Rates
Car dealers and lenders won’t simply overlook your poor credit history when you apply for vehicle financing. In their eyes, the risk of working with you is greater than that of a typical car shopper. So, always go into the experience with the expectation that your new car loan will come with a high APR. (It’s the nature of the game, sadly.)
Get Pre-Approved Early
Gain more confidence in your search for the right bad-credit auto loan by going through the pre-approval process. Doing so will ensure you understand how much vehicle you can realistically afford.
Most auto dealerships allow you to get pre-approved for financing on their sites, though it doesn’t hurt to speak with a member of your dealer’s financing team in person.
Finance at a Local Dealer
To get approved for a good car loan with bad credit, you should stick with a trusted local dealership rather than a large bank or auto financing company. Local car dealers provide better customer service, will be more willing to work with you on payment arrangements, and may even offer auto financing deals to lower your down payments.
For instance, when you apply for a loan at any of our Phoenix Valley Honda dealerships, our finance specialists will help you figure out your monthly payments, discuss trade-in options, and go over any potential Honda financing discounts available. When you work with a larger bank or lender, you’re often left to your own devices when choosing the right subprime auto loan.
Refinance Your Auto Loan
With a solid history of making on-time payments, not only will your credit score begin to improve, but you may also have an opportunity to refinance your car loan with your dealer or lender. Like a mortgage, refinancing an auto loan is a great way to reduce your monthly financial obligations without negatively affecting your credit. In some cases, you may even be able to refinance without making an additional down payment! (Just check with your car dealer for more information or advice.)
Check the Fine Print
Oftentimes a contract for a car loan will have restrictions and limitations that could cause trouble if you don’t follow the rules. For example, some bad-credit car loans will penalize you for paying off the balance too quickly. While obviously not ideal from a financial standpoint, there’s a silver lining to this type of penalty: it forces you to continue making monthly payments, thus increasing your credit score at a consistent pace.
Don’t Worry About Credit Report Inquiries
If you’ve already got bad credit, inquiries into your credit report and payment history shouldn’t be a big deal. (In fact, most bureaus won’t even take points off your credit score for inquiries from car dealers or lenders.)
Find a Co-Signer
Having a co-signer – especially one with decent credit – may help you get approved for a car loan with better terms and even a lower interest rate. However, it’s important to understand the ramifications of missing a payment or having your vehicle repossessed; instead of you being liable for the loan, your co-signer may be required to fork up the money. So, don’t just ask any ol’ Jack or Jill on the street to co-sign your car loan, as they’ll be pretty upset if you break your promise.
Apply for Honda Financing in Arizona
Over the years, our Arizona Honda dealers have successfully helped thousands of residents repair their credit scores by financing a new or used vehicle. Shoppers from all over the Phoenix region trust Valley Honda Dealers to get them the best possible car loans, and now it’s your turn. Find and contact your nearest Phoenix Valley Honda dealership to request a quote or get your pre-approval application started.