Credit scores are among the key factors lenders take into consideration before approving a loan application. One of the most used credit scoring models, FICO Scores rates credit between 300 and 850. A credit score below 669 is considered fair or poor. Many believe that a bad credit score makes it difficult for any loan approval. However, that’s not the truth. Many banks and lenders approve car loans even if you have bad credit.
While it may cost a lot in the long run, there are certain things you can do to increase your chances of getting your loan approved.
1. Getting a cosigner
Your chances of getting approved for a car loan increase by a significant margin if you have a cosigner with a good credit score. Moreover, it can also provide you with a better rate of interest on the loan. The concept of cosigning is essentially assurance of repayment from a third party. Cosigning on a loan application means that the lender is guaranteed his/her money back. If you fail to repay the loan, the cosigner assures the lender that he/she will pay for it.
This boosts your loan application towards approval as the lender feels less at risk. Since the lender can contact someone in case of failure for repayment, they are more likely to approve the loan. As a result of less risk, the lender might also give you the loan on a lower interest rate. However, you should know that this loan will affect you and your co signer’s credit report. Hence, any delays or miss on the payments will affect both your scores.
2. Try a buy-here-pay-here dealer
One should try to buy a car from a dealership that also finances loans. Many get a loan from a third-party lender. However, this auto financing tip can be used when the dealership also provides financial services. This implies that the decision to approve the loan depends on the same organization that earns profits when they sell a car. Hence, dealerships have flexible policies when giving car loans to people with a bad credit score.
3. Find a second-chance car loan
True to its name, a second-chance car loan provides people with poor credit a second chance. One of the best auto financing tips to consider with poor credit, these types of loans are the perfect option if your application for a conventional car loan has been denied. A second-chance lender can provide you with a wide range of borrowing options that you are most likely to get approval for. However, this has its own share of downsides. For example, they would have higher fees and interest rates among other charges that act as compensation to the lender for the risk it is taking.