4 Tips for Getting Auto Loans with Bad Credit

Auto loans with bad credit are attainable, but they will typically come with much higher interest rates. Your income and total will be the two factors that most affect your ability to simply secure a loan. The main exception is getting a loan after a bankruptcy or default, which can be a challenge. Credit comes into play more with your interest rate than your ability to secure the loan. If you have low credit but a moderate income and no previous defaults, then you can use the following tips to lower your interest rate and secure a quality car loan.

1 - Use a Credit Line for a Large Down Payment

Providing a large down payment through any means will lower your total loan limit, decreasing your expense and making your loan less risky for the lender. If you have the cash on hand to do this, then it is highly encouraged. Otherwise, consider using a credit line to make the initial down payment. You will have two loans on your new car, but you should be able to pay off the down payment loan early and enjoy a low interest rate on the longer, pricier auto loan.

2 - Save for High Installments

Offering to make higher monthly payments and close the loan early will make you a more attractive borrower to your lender. The lender will again be assuming less risk, and they will quote you a lower interest rate as a result. The lowest rate car loans are paid off within 3 years. Another key advantage to a high monthly installment is the way your credit will increase when you pay off the loan. Within a few years, you will see a drastic improvement in your score by paying off the loan on time.

3 - Use Additional Collateral

Most car loans are secured against the car they are used to purchase. This means your car title goes immediately on hold with the lender until you pay it off. While this secured method does immediately lower your interest rate and help get you a loan, providing additional collateral through another asset will help. You can use another vehicle, a stock certificate, your home equity, or even commercial equipment in order to further secure the loan. Lenders rarely say no to borrowers willing to place a large amount of collateral in exchange for a small loan.

4 - Look to Alternative Lenders

If you do not have the income to get a traditional loan, or if you have a bankruptcy on record, you will likely need to seek alternative lending options. There is not much you can do to lower the interest rate on a loan from a high risk lender. However, if you need the vehicle and can make the monthly payments, then this is the best route to take. Alternative lenders include independent financiers, online lenders and pre-approved car loan lenders. You should ask your car dealer for a referral to a high risk lender if you are going to pursue this option in order to locate a trustworthy source.

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