Whether you’re new to the world of loans and credit or are a subprime borrower, trying to find financing for your car that won’t leave you paying out of the nose because of high interest rates can be a challenge. One of the obvious options, of course, is to take out a loan with a cosigner.
While that might be ideal for someone young who’s just buying their first car and still needs assistance from their parents, most people don’t want to deal with the crutch of a co-signer (not to mention, the anxiety of knowing that if you fail to make your payments, your co-signer is responsible for them).
If you have bad credit (or no credit), here are some ways you can get a favorable auto loan without needing someone else to be your Cosigner.
Check your Credit Score
This is advice that you’ll see repeated here often, but it’s one of the most important things you can do. Knowing and understanding your credit score is the key to prioritizing the lenders you contant and negotiating better loan terms. You should run your credit report at least three months before you buy so you have time to go over it thoroughly and report any errors or inaccuracies. It also gives you time to try and boost your score by a couple of points prior to applying for loans.
Understand not only what your score is, but how where it falls on the scale will influence your financing. Even two people with the same credit score might be viewed differently in the eyes of lenders (depending on credit history and/or lack of credit score).
Research and do your homework
Once you know your score and where you fall on the credit spectrum, it’s time to shop around. If you can get financing directly through a bank or credit union, it’s definitely preferable to getting it from the dealership. Dealerships often have arrangements with lenders and get a kickback for arranging the loans (which comes out of your pocket). Dealers will often jack interest rates and offer you loan terms that are excessively difficult.
Even if you don’t think you can get financing through a mainstream bank, try anyway. And don’t just stop at one – apply at multiple banks. Just because one lender might be turned off by your score doesn’t mean they all will. It’s absolutely worth the time and effort spent. Start by applying at a bank where you already hold an account that’s in relatively good standing and go from there. If you don’t have a bank account, go to a credit union. Just make sure not to apply solely at places who cater to those who need subprime loans (it can be a red flag as they know most of their clients don’t have many financing options/are desperate for a loan and the lenders will use that information to their own advantage).
The more mainstream the lender, the better the peace of mind you’ll get. Just make sure to keep all of your loan applications within the same two week period because when lenders check your credit score, it results in a hard inquiry. Too many hard inquiries can sink your credit score. The two week window is a grace period allowed by credit bureaus in which as many hard inquiries can be made as you wish.
If you’re unable to get financing from a mainstream source (or they’ll only allow you to get financing with a cosigner), another option is to see if your employer or insurance company offer auto financing. Financing directly through the dealership should be your last resort.
There’s also one thing you can do that will almost guarantee financing: Have a steady job.
Bring in a pay check, pay stub, or bank record that proves that you’ve had a job for at least three months and earn at least $1,500 a month. Even if you’re a subprime borrower with a spotty credit history, by bringing proof of your current steady employment, you’re showing lenders that you’re responsible enough to trust with their money (without tacking on an absurdly inflated interest rate).
Don’t go by monthly payment
When you do get a loan offer, make sure you understand the terms before signing. A low monthly payment is meaningless if the loan also includes an interest rate of 19% and spans over a period as long as 84 months (7 years). The general rule of thumb is, if you can’t afford to pay off your car in six years or under, find one that’s cheaper. When discussing loan terms, look for the lowest annual percentage rate (APR) over the shortest period of time rather than trying to get the lowest monthly payments possible.
There are a number of options for getting a reasonable car loan without a cosigner. Just make sure you do your research beforehand!