How to Get a Car Loan with Damaged Credit
Debtors Unite debunks the myths on car loans. In this short tutorial, we show you how to get a car loan with damaged credit.
First of all, understand the biggest myth of how loan applications affect your credit scores. Did you know that you are not penalized for each loan application
? That's right! FICO credit scoring formulas will only ding you for the first application when you are trying to buy a car.
You may temporarily lose up to 5 points off your credit scores after applying for a car loan. You regain all of those points within a maximum of 2 years.
Many people mistakenly believe that each
application will hurt their credit score. While this is true for many types of credit, such as store cards or unsecured personal loans, this is not true for car loans
. As long as all of your car loan applications are submitted within a 45 day period, credit scores will only be impacted by the first inquiry.
What this means is that you are better off applying with many lenders to make sure that you are getting the best rate. While manufacturers often offer the lowest rates on new car loans, some credit unions frequently offer the lowest rates on used car loans.
The second myth is that the finance manager will find you the best deal. This is not true. In fact, finance managers frequently withhold the best deals from you simply because the kickback to them is not as high. Known as a yield spread premium, this kickback is just one of many ways that they are trying to profit from your purchase. They will try to steer you into the loan products that give them the best commission. Coincidentally, those tend to carry higher interest rates to the borrower, in this case YOU!
Now that you know these facts, you are ready to apply!
The first step is to obtain your credit scores. While it is beneficial to do this periodically, it is a must if you are planning a major purchase on credit. You need to know what rates you deserve so that you are not taken advantage of by a gluttonous finance manager.
Next, research the rates that you deserve based on those credit scores. Bankrate.com
is just one of many research tools that you may use. You may also check with your preferred lender's published rates. Be sure to verify the rates with any credit union for which you may be able to apply with. Some credit unions have extremely relaxed membership requirements by which almost anyone may join.
Finally, gain pre-approval for your car loan. Apply with multiple lenders so that you may go to buy your car knowing that you are already approved for a certain amount. You may wish to apply for slightly more than what you believe your best price will be, so that you do not have to reapply.
Once you have gained pre-approval for a car loan, it is normally recommended to avoid disclosing this to the dealer until after you have negotiated a sales price. Dealers will often quote a lower price if they believe they will make additional money from arranging your financing.
Once you get a car loan and drive your car off the lot, make sure that you set up automatic billing with your lender to ensure that all of your payments are made on time. This can help you avoid any late payment situations
that can damage your credit and risk your collateral!
As you can see, you can get a car loan even with damaged credit. As long as your scores are not too low, you can usually gain approval from a number of lenders and simply choose the best offer.