So you’ve started shopping for a new or used car but have been wary due to less-than-stellar credit. There is help available – with some research, you have options for getting approved for an auto loan even with bad credit.
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Secured vs. Unsecured Loans
The two main types of car loans for bad credit are secured and unsecured. A secured loan requires collateral, usually another vehicle you already own. If you stop making payments, the lender can repossess the collateral. Unsecured loans do not require collateral but often come with higher interest rates.
Bank/Credit Union Loans
Your bank or local credit union may offer more competitive rates than a dealership, especially if you’ve had accounts in good standing for awhile. Some lenders that specialize in borrowers with bad credit like Detroit Michigan finance car loan bad credit can also be worth exploring. Be prepared to provide extra documentation.
Cosigner Options
Adding a cosigner with good credit, like a parent or spouse, significantly improves your chances of approval and lowers your rate. However, the cosigner is fully responsible for payments if you default. This option makes sense if you have a reliable person willing to co-sign.
Dealer Finance Options
Dealerships work with various lenders that specialize in subprime borrowers. You’ll get an interest rate based on your specific credit profile. While dealer loans are very flexible, the rates may be higher than what you’d get elsewhere. Be sure to shop around.
Personal Loans for Auto Purchases
A personal loan through your bank or credit union for the full vehicle purchase price can be used instead of an auto-specific loan, especially if you can get a lower rate. Just beware of longer repayment terms that result in more interest paid over time.
How to Improve Your Odds of Approval
To get the best terms, strengthen your application by making payments on time for other obligations first, paying down credit card balances, and correcting any errors on your credit reports before applying. Presenting strong proof of income can also help offset weak credit history for many lenders.
With patience and research into your financing options, it’s very possible to find an affordable loan and drive off in a new ride even with a less-than-perfect credit history. Start exploring alternatives today to get the ball rolling on improving your auto lending odds.
