By David Pilley on October 25, 2010
.jpg.aspx?width=75&height=75) Poor credit might prevent you from getting some loans, but it doesn’t mean you’re barred from getting any loan. This holds true for a car loan, as even if your credit score is in the lower 600s, you can be approved for a vehicle that isn’t a lemon.
There are few requirements in receiving a car loan. One website, www.autoloan.com, lists its minimum requirements as “being at least 18, being a US citizen, and making at least $1800 in gross monthly income.” Other websites or physical car dealers will take into account your debt-to-income ratio and determine if you are able to pay back the loan they offer. The loan you receive is secured, but the property that gets repossessed if you run up a few late payments is the car itself.
You may be able to get approved for a car loan with any credit score, but the lower your score the higher the interest rate. Autoloan.com lists probable rates at 7% for a credit score over 700, 7.5 to 10.5% for a credit score in the 600s, and between 15 and 20% for any credit score lower than 600. A high interest rate could put you in a deeper financial crunch if you make late payments. Most car loans you can get with poor credit range between two and four years in length, but you make monthly payments. You could ultimately pay more back in interest than the principal if you have multiple late payments.
If you can get pre-approved for a loan, you will have more bargaining power in determining the amount of the car loan. If you have an existing bank account or you are a credit union member, you may be able to get pre-approved. Just don’t try to get an expensive car, like a Mercedes or Lamborghini. Look at something more affordable.
The most important thing in getting a car loan (or any loan, for that matter) might be the down payment, or a partial payment of the loan in cash. Even if your credit score is in the cellar, if you have enough money for a decent down payment, a dealer will be more likely to approve the loan. If you can pay at least 20% of the loan upfront, you will be in much better financial health in the near future, and you will have much interest to pay back on the loan.
Don’t automatically take the first offer. Shop around online or go to a car dealership and talk in person. Don’t be ashamed of a low credit score because you can still be approved for a loan on a decent car, granted you have the ability to pay it back on time.
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