Getting a five-figure loan sanctioned to buy a car is not easy. If you add a poor credit history to the mix, the odds escalate that much more.

Going by the most common credit score model, an individual’s rating can be anywhere in the range of 300 to 850. In this range, a score of 669 or less is ranked on a spectrum of fair to poor, depending on the policies of the loan provider. While a score like this may limit your eligibility for securing a loan, with some research and careful financial planning you can still land one.

Here’s everything you need to know about how to get on:

What is a Bad Credit Loan?

Let’s face it – the word bad credit loan does have a rather ominous ring to it. But it’s not as scary as it sounds. These are simply loans especially designed to cater to the needs of individuals with low or bad credit scores. Since poor credit scores are looked at as a reflection of an individual’s tendency to default on payments, most lenders want to steer clear such customers.

In a scenario when most mainstream lenders won’t entertain you as an eligible candidate, a bad credit loan secured by providing security or collateral in the form of financial securities, gold or property papers can be your ray of hope in a grim financial situation. Before you decide to get one, learn more about bad credit loans here.

How to Get a Car Loan with Bad Credit?

When going out to seek a car loan, be mindful that your credit score isn’t the only factor that counts. Your eligibility is assessed on basis of other indicators such as:

• Income
• Nature and amount of loan
• Work History
• Career Stability

So if you’ve made some poor financial decisions in the past, they shouldn’t necessarily hinder your access to loans in the future. All you’ve got to do is look in the right places. So when you shop for a car, make sure you invest the same energy and time in shopping around for bad credit loans as well.

In fact, a report on State of the Automotive Finance Market by Experian, the average credit score of people taking loans for pre-owned cars was 656 and the figure was 713 for new cars.

You don’t have to settle for the first lender who is ‘generous’ enough to offer you a loan despite your poor credit score. On the contrary, when you are in a less than agreeable financial situation, it becomes more imperative to consult and talk to as many lenders before you settle on one. Here are some options to explore for securing an auto loan with bad credit:

• Banks
• Car dealerships
• Credit unions
• Finance Companies
• Dealer Financial Services Group (DFSG)

Finding a lender that fits the bill of your expectations is only a start point. Here on, you’ll need to tread carefully through the process of loan approval to make sure you are not handed the short end of the stick that’ll further complicate your financial situation.

Dos and Don’ts for Getting a Car Loan with Bad Credit

You want a loan, not an albatross around your neck. Here are some dos and don’ts to help you along the way:

Dos

• Know Your Credit Score: Don’t take a lender’s claim on face value. Get an independent report on your credit score and stay updated on how that score changes every 12 months or so.
• Shop Around: Just because you’ve a bad credit score, doesn’t mean you must settle for what you get. Shop around and explore your options.
• The Two-Week Timeframe: Every time a lender checks your credit score, it impacts your report negatively. However, all queries made by lenders within a two-week period are considered as one, which saves your credit score from taking multiple hits. So make sure you reach out to different lenders within a two-week window to avoid further worsening your credit score woes.
• Consider Pre-Owned Cars: The credit score requirement for loans on used cars is lower than that for new ones.

Short Term Loans: If you can afford a hefty EMI without defaulting on repayments, consider getting a loan for a shorter period of time. The interest rate is a lower for short term loans.

Find a Co-signer: Does your spouse, parent, sibling, or friend have a near-perfect credit score? Get them to co-sign your car loan to bring down the interest rate.

Don’ts

• Settle for ‘Buy Here Pay Here’: Steer clear of these dealerships as they tend to inflate values of cars and don’t report loans to credit score agencies, which means even a full repayment won’t improve your credit score.
• Get Swayed By Verbal Promises: Don’t accept a loan agent’s verbal promises. If it’s not in writing, it doesn’t count.
• Sign Documents You Don’t Understand: Take your time to assess the papers or even get help from professionals if you need, but don’t sign without understanding the fine print.
• Be Pressured to Buy Extras: Extra warranties, extra policy cover, and annual maintenance contracts – these extras will only escalate the cost of your purchase without adding any real value.

The Bottom Line

An informed decision can go a long way not just in helping you secure a car loan even with bad credit score but also improving your credit rankings.