Maybe it all started when you signed up for that first credit card in college and promptly maxed it out by hitting the bar scene. Or maybe you had to buy new clothes for your first job… which then lead to having a fabulous wardrobe but not enough income to pay off the monthly bill for your pricey attire. Possibly it was just a confluence of unfortunate events… a layoff, a medical issue, just pure bad luck and misfortune. No matter what got you to the place you’re in now – stuck with bad credit, seeming like a pariah to any lender – try not to feel as though it’s a reflection on you, personally. Sure, people may say “I’d never let that happen to me,” but unfortunately, we can’t always control the factors that lead us to max out credit cards or default on our loans.
The thing to focus on now is how to turn your situation around. While the formula is simple – get a good job, use your income to pay off your credit cards and borrowed money, build your credit back up and save so that you don’t wind up over-borrowing again, the reality is that sometimes to get to the end result of fixing your bad credit, you actually have to borrow more money. Nowhere is this more apparent than when people need to get a car loan and they have bad credit holding them back. Now of course, if there is any way to avoid taking out another loan – you should absolutely do that. But if you don’t live close to public transit or in a walkable distance to your employment, then you really may not have any other option than to purchase a car to get you back to work. While we know the the prospect of going even further into debt and into the bad credit spiral can be terrifying, if you follow the steps and advice outlined below, you’ll soon see that even with bad credit, a car loan can be an excellent tool to help turn your situation around and build your credit back up.
1.Do not try to buy more car than you need
Let’s just be blunt: in a perfect world, you wouldn’t buy a car while your credit was in the tank. Really, at this point, any car is more car than you can afford to take on. However, as we addressed before, sometimes a car loan is a necessary evil. If you’ve decided that it’s going to be completely impossible to find or keep employment unless you have a reliable car, do lots (and lots and lots) of research on cars that might be suitable for you. Do not even think about trying to get your hands on a new car – not only may it be next to impossible, it’s certainly very impractical. Plenty of dealerships offer cars for under $10,000 – research those dealerships to find the most reputable one by reading online reviews and chatting with any friends or family who may have done business there before. Visit the dealership yourself just to get a feel for what’s on the lot and if you find the dealership and sales staff trustworthy. And if you can, try to put down as much cash as possible – the less you have to finance, the better.
Once you’ve narrowed down your car of choice, do not even think of driving it off the lot until a trusted mechanic gives it a once over. Also, find out what your warranty is on the car – do not gloss over the fine print on this one… if you have bad credit, you’ve already made some costly choices – don’t let your new-to-you car be your next one.
- Find a reputable lender to work with your bad credit
You might be surprised to learn that plenty of banks and financial institutions will probably still work with you, despite your bad credit. Reach out and talk to banks, such as Capital One, Wells Fargo, and even your local bank or credit union – they may be willing to finance your loan. The thing is, ironically, a bad credit car loan is going to cost you more than if you had a good credit car loan. This is because lenders consider loaning you money a big risk, so they mitigate their risk by charging you way more interest than if you had a good credit. But again, if you need a car to earn money and boost your income, then you’ve got your hands tied. Again, this is why it’s important to take time to do your research. Call several banks and finance companies (and don’t forget to look at online options, such as myautoloan.com) and see how their financing offers compare. You may also be able to finance directly through the dealership, although again, you’re going to want to carefully review the terms of the dealer’s loan (beware Buy Here, Pay Here dealerships and loans). When you find a bank, dealer or financial institution that offers terms you can abide by, work with them to secure the loan that will get you into a reliable used car.
- Do not screw this up
Look, here’s the deal – most likely, you have bad credit because you made big mistakes somewhere along the line. Do not, I repeat, do not let this be another… because eventually you’ll run the risk of destroying your credit so thoroughly that you may find it impossible to ever get financed for anything ever again… and this includes a house, a car, so many things you may one day wish to own. And not only that – living under the cloud of bad credit and poor financial decisions is not a fun way to live. It’s stressful and terrible for your health. Give yourself some grace and realize that you can put your bad mistakes and bad credit in the past, and then take the right steps to do so. Get a loan that you can actually meet the payments on and do so every single month. Do not even consider blowing that loan money on anything other than paying back your lender. If you can do this, you’ll be amazed by how quickly you can rebuild your credit, which will allow you to make positive changes throughout your life. Sure, it takes willpower and discipline to make your car payment every month, but that willpower and discipline will also allow you to keep building your career, thereby making more money and saving for the future. Be smart with your bad credit car loan, and one day you’ll be able to look back and smile at how far you (and your credit score) have come.