During the pandemic, everything from baby formula to graphics cards rose in price. And unfortunately, cars suffered the same fate. Vehicles now cost as much as 40% more than they did last year.
Cars have always been a hefty financial investment. Now you may not be able to buy a car with a single payment. That’s a huge problem if you can’t get online car loans.
Car loans for bad credit might seem like an impossibility. But believe it or not, there are ways to get bad credit financing. You just need to know where to look!
In this guide, we’ll discuss everything you need to know about auto loans with bad credit.
Understanding Your Credit Score
Discovering how a credit score works is one of those rites of passage, like going to college or getting married. Everyone has a credit score whether they like it or not. There’s a good chance your parents advised you to get a credit card ASAP to start building it.
But what is a credit score? Put simply, this is a number that tells people the likelihood that you’ll pay off your debts in time. When you buy a house, or a car, or apply for a loan, they’ll check your credit score.
This number goes from 300 to 850.
If your credit score is closer to 300, that means there’s a small likelihood that you can pay off debts. This low credit score results from making late payments or bankruptcy. As such, lenders won’t risk giving you a loan out of fear that you’ll default.
If your credit score is closer to 850, that means you pay everything off on time. You zero your accounts and never let payments pass you by. This makes you the ideal candidate for just about any type of loan or mortgage.
How Does a Credit Score Affect Online Auto Loans?
The bank or the car dealership will look at this number when you apply for a loan. The process is often automatic. They may deny you automatically if your credit score is not up to snuff.
A higher credit score doesn’t just mean you’ll be eligible for more loans. It means these loans will come with lower interest rates and greater flexibility.
A lower credit score not only makes you less eligible, but the loans you do qualify for may have higher interest rates.
So first things first: check your credit score. You’ll need to find this information on your own with a free online credit score calculator. If you have a relatively high score, you may be able to get a decent loan.
However, there are other options for those with bad credit to get loans. To be clear though, there are some caveats. Bad credit loans may have:
- Higher interest
- Less flexible payment options
That said, this may be a chance for you to turn things around. If your bad credit score is a result of poor financial decisions, paying off a loan improves your score. Then with your improved score, you’ll have more options in the future.
How to Get Online Auto Loans With Bad Credit
If your credit isn’t good, then there’s still hope. There are ways to “bypass” a bad credit score.
As mentioned above, this is a chance for you to improve your financial standing. Assuming that you have the finances, you can start to set your credit score right. This leads to a brighter future for you with better economic security.
1. Obtain a Loan Based on Earned Income
If your credit is bad, then you can prove your income with paystubs. This demonstrates to the seller that you at least have the money to pay loans.
Depending on your earned income, the loan may have to be smaller and last longer. You will have to work with them if you are in a unique situation, such as receiving government support.
Generally speaking, in Canada loan providers expect you to make about $1,800 CAD before taxes. This can be weekly, bi-weekly, or monthly payments. Steady employment and constant income will be essential when applying for one of these loans.
You’ll need to gather your documents from the bank or your employer. Once you prove your eligibility, you’re good to go!
2. Get a Used Vehicle Instead of a New One
New vehicles are more expensive, and therefore require bigger loans with higher interest. You may struggle to pay off a new car. But choose a used car, and it’s a whole different story.
However, you may have limited options when purchasing from an individual. If you want a used car, a dealership will be your best option. Subprime auto lenders will give online auto loans to those with bad credit.
Do take great care in selecting a used vehicle that’s in good condition. You do not want to go through so much effort, only to discover that the car is bad. Unfortunately, there’s nothing to protect you if this happens, and you’ll still owe the money.
3. Apply for an Auto Loan Online
Pre-approved auto loans with bad credit are another great option. These are loan providers that understand that you’re in dire economic straits. There’s a much smaller chance that they’ll deny you.
Carsfast is an excellent choice. All you have to do is take their online quiz. They’ll ask what sort of car you want and a few personal questions.
Pre-approved loans happen very fast. There’s no need to wait while they dig into your background to determine your credit eligibility.
While these are from subprime auto lenders, they’re a strong, reliable option. They make it easy for anyone to get a loan no matter their situation.
For anyone in the throes of bad credit financing, this is the ticket.
4. Make a Sizeable Down Payment
Another way to improve your chances of car loans for bad credit is with a down payment. This is a large, single-time payment that you make towards the total loan payment. You’ll need to make this payment from the beginning to get approval.
You’ll need to save up for this down payment in advance. Using this method leads to a number of benefits:
- Your loan will be smaller
- You’ll pay off the loan sooner
- Interest may be lower than other subprime auto loans
- There may be more flexible payment options or a flexible payment schedule
The size of the down payment will depend on where you get the loan. Some will allow you to make a larger down payment. Whatever the case, start to save up now so you’re prepared no matter what the down payment size is.
5. Recruit a Cosigner
A cosigner is an individual (typically family or friend) that assumes joint responsibility with you. They sign off on your loan and the credit company makes the two of you equally responsible. However, the cosigner is not obligated to make any payments.
This is a great way to “bypass” bad credit. Your cosigner is taking the risk, which improves your options. It may allow you to get loans that were previously unavailable to you.
However, do understand that your cosigner risks their own credit score here! If you fail to pay off the loan, it will harm both credit scores. While they understand what they’re getting into, don’t make the mistake of abusing their trust.
A cosigner can also, if they agree to do so, contribute to loan payments. This could be a parent who has agreed to assist you to pay off a loan. Both of you can provide half of the monthly payment, reducing the strain.
Tips After You Get Your Online Auto Loans
Now that you have an auto loan with bad credit financing, keep a few things in mind. Failure to pay off this loan in time could harm your credit score and make future opportunities more bleak. Let’s discuss a few pro tips no matter your situation.
1. Don’t Miss Your Monthly Payment
Missing a payment harms your credit score. It may add penalties to your loan, increasing the cost you pay. Further, it ruins your relationship with subprime auto lenders for future loans.
2. Try to Pay More Than the Minimum
The minimum amount is the lowest dollar sum you can pay per month. It makes it easy to have a loan while struggling with other bills. However, it means it will take longer to pay off the loan–and you’ll pay much more in interest.
3. Be Prudent
Bad credit financing isn’t just convenient for someone with bad credit. It’s a chance to start over.
Budget, limit unnecessary expenses, and be frugal. A bit of sacrifice can do wonders for your credit score.
Get Online Auto Loans With Carsfast
Online auto loans are a necessity now that the cost of cars has risen so high. Those with bad credit have seen how difficult it can be to obtain one. Fortunately, there are options available to you.
And one of those options is to apply for an auto loan online with Carsfast. Head on over and fill out the quiz. Then you’ll be ready to get the loan you need!