Ok, so your finances went sideways for a while and your credit score has taken a serious hit. Further, your problems are now being compounded by the fact you need a new car.
And, it’s an absolute need, as opposed to a want. The good news is buying a new car with a poor credit history is possible. You just have to shop carefully and be willing to pay a bit more.
With that in mind, here’s what you need to do to make it work.
Review Your Credit History
You know you’ve had to make some choices that diminished your score, but you need to know exactly what your situation is. Further, reviewing your credit report might uncover errors of which you were unaware of. Fix those; you could get bumped into a slightly higher category.
This is a worthwhile endeavor because even a one or two point raise can make a significant difference if you’re right on the cusp of a better classification. Remember, the higher your score, the better the interest rate you’ll command. Any effort you put into elevating it will translate to dollars saved.
Assess Your Budget
List all of your financial obligations (the bills you have to pay each month), total them up and compare that figure to your monthly income. Be sure to take savings into consideration as well.
Once all of your needs are covered, how much cash do you have left over to pay for a car? Keep in mind, you’ll need to buy fuel and insurance, as well as pay for maintenance and registration, so figure those expenses in as well.
After you get a solid handle on that number, use a car affordability calculator to figure out how much you can comfortably afford to pay for a car. Whatever the number turns out to be, you’ll also need 20 percent of it in cash to serve as a down payment, so be conservative.
Pull Your Financial Records Together
Lenders are going to want to see proof of your current income in the form of paycheck stubs. You might also be asked to provide a copy of your most recent tax return.
If you’re self-employed, you’ll need to show 1099s and perhaps grant access to your bank accounts to prove you can repay the loan. You might also need to establish proof of residency with utility bills, a rental agreement or your mortgage statement.
Determine Your Exact Needs
What will you need the car to do? How many family members will it need to be capable of accommodating? Based upon where you live and where you must drive, will a station wagon serve you just as well as a compact SUV?
Look for cars capable of fulfilling all of your needs, priced just below what you’ve determined you can afford.
Seek a Loan Pre-Approval
Check with your bank or credit union first to see what kind of deals they’re offering on sub-prime auto loans. Look online at lenders such as RoadLoans too. They can be a bit more forgiving of credit problems than traditional lenders.
Limit your application activities to a two-week period so the credit agencies will consider all of your inquiries as a single one. This will minimize the hit your credit score will take because you’re applying for loans.
Go Find Your Car
With your pre-approval in hand, go shop for the car you need, confident your loan is approved. This gives you greater bargaining power when you’e negotiating price.
Buying a new car with a poor credit history is possible. If you take all of the steps outlined above, be patient and keep trying, you will get what you need.