How To Get A Car Loan With Bad Credit – Forbes Advisor

It’s common for economic hardship to damage credit to the point where getting approved for a car loan might seem more difficult, even though a car is key to meeting needs like going to work, school and, ultimately, getting back on solid financial footing.

While it may seem daunting to qualify for a car loan with a bad credit score (below 580), there is a large network of lenders and car dealers who are more willing to work with low- and bad-credit score borrowers. If all goes well and payments are made on time, it can help boost your credit profile.

We will walk through the process of getting a car loan with bad credit, including how to prepare and how a car loan impacts your credit.

5 Steps to Take Before Applying For a Car Loan

It’s easy to feel the urgent need to get a car as soon as possible when it can be the key to getting a job faster and improving your credit score in the long run. But it’s important to be patient and do your research first by assessing your own financial situation as well as options for loans and vehicles.

Here are five steps to take before applying for a car loan.

1. Check Your Credit Score

Auto lenders who accept an applicant with a low or no credit score will typically charge a higher interest rate or have more costly loan terms in order to cover the risk of lending you money.

Your credit score is a summary of your credit history and creditworthiness that lenders use to determine where to approve you for a loan and what terms.

It’s crucial to check your credit score and credit history ahead of time and fix any errors, or try to catch up on late payments to improve your score and lower the cost of your loan.

Most lenders will grade your FICO score, a three-digit number typically ranging from 300 to 850, the following ways:

•  Exceptional: 800-850
•  Very Good: 740-799
•  Good: 670-739
•  Fair: 580-669
•  Very Poor: 300-579

If you have a fair or very poor credit score, you should aim to fix your credit profile by removing any errors and paying all your bills on time

Your payment history makes up 35% of your credit score and is the most important factor. Other factors that make up your credit score include credit utilization (30%), length of credit history (15%), new credit (10%) and credit mix (10%).

You can check your credit report with each of the three bureaus through AnnualCreditReport.com. You can typically check your report for free once per year, but due to Covid-19, each credit bureau is offering free weekly credit reports until April 20, 2022.

2. Assess Your Income and Debt

Even if you have a low credit score, lenders will also look at your monthly income against your monthly expenses to weigh your ability to repay a…