Just because you have bad credit doesn't mean you're stuck getting an auto loan from the first lender who will approve you. This mindset almost guarantees you'll end up with an auto loan with bad terms. To ensure you walk away from the dealership happy with your auto financing, follow these two tips.
Shop for the Loan First
Most people who want to purchase a new car or truck shop for the vehicle first and then sign with a lender. However, you're much more likely to get a better deal if you find a lender first and then shop for the vehicle.
First, it'll be easier to compare interest rates to ensure you're getting the lowest one. You may not always be given your options when you're at the dealership. Because you have bad credit, the salesperson may claim there are only one or two lenders willing to finance your purchase, and you will have to accept whatever interest rate was offered. By searching for a lender first, you have a better chance of finding someone willing to finance you for a reasonable rate.
Second, it'll ensure you stay within your budget. It's easy to get caught up in the moment when you're on the lot and the salesperson is talking up the vehicle. This is how many people end up leaving the dealership with a bigger loan then they really need. By knowing what your limit is before you step on the lot, you're more likely to get something you can afford.
If possible, get preapproved and take your approval letter to the dealership with you to avoid getting talked into using an alternative financing company.
Get the Shortest Term You Can Afford
Another thing you want to do is get the shortest loan term you can afford. These days, many financing companies are letting people finance their cars for up to 97 months. While this can make your loan payments incredibly low, it's probably not the best option for people with bad credit. First, you'll pay more interest on the vehicle, especially since many lenders charge higher rates for terms over 60 months. Second, you may end up underwater on your loan as the vehicle loses value through depreciation. This can make it difficult to get a good deal on a new vehicle when it comes time to trade in your old car.
It's best to keep the loan terms under five years to get a good interest rate. At minimum, pick the loan term that matches how long you think you will keep the vehicle.
For more financing info, contact an auto lender.