Maybe you have high student loan debt, fell behind on some credit card payments, or are having difficulty with your mortgage. These things happen—and they shouldn’t prevent you from getting a car loan if you need one. Bad credit can stand in the way of getting a good rate on your loan, and you’ll most likely pay a higher interest rate than someone with spotless credit. However, if you go into the negotiation prepared, you could still get a better deal than you’d think. Here are a few insider tips on negotiating a better rate on your car loan—even if you have bad credit.
The reason lenders give higher interest rates to people with bad credit is that the chances are higher that those borrowers will fail to pay back the loan. The high interest rate ensures that the lender will get more of the money back.
To get a lender to take a risk on you, you’ll need to demonstrate three things: that you have stable income, that you have a history of making regular payments toward something, and that you have a network of friends and family who can help out if times get tough. Bring in a pay stub, a utility bill, and personal references, and you may be able to negotiate a lower rate.
Get a co-signer
This isn’t possible for everyone, but having a co-signer can definitely reduce your interest rates. Get a family member or close friend with good credit to co-sign on your loan, and you can get a much lower credit rate. The catch is that if you have difficulty paying back the loan, your co-signer will be responsible for it and it could affect their credit as well—not to mention your relationship with them. So choose your co-signer wisely, and make sure you can pay.
Get rates from several different places
It pays to have a good idea of the interest rates that are realistic for you—so you’ll know a good deal when you see one. Talk to several different lenders to find out the interest rates they would give you on a car loan. If you have a preferred lender, you may be able to negotiate them down if others have offered you lower rates in the past. In some cases, numerous different inquiries into your credit score from lenders can lower your score, but several different auto loan inquiries within a short period of time shouldn’t adversely affect your credit.
Know your credit score
Under Australian law, you can request a free credit report once a year from Experian http://www.experian.com.au/credit-services/credit-reports/order-credit-report.html, D&B https://www.checkyourcredit.com.au/MyAccount/Order/StandardService, or Veda http://www.mycreditfile.com.au/home/free-credit-file.dot. It is especially important to know which parts of your credit history would be considered risk factors by a lender, such as spotty repayment histories or a significant outstanding debt. Be ready to discuss the reasons for any past credit problems, and demonstrate that the situation has improved.
Don’t try to negotiate a loan for a car that’s out of your price range—be sure what you’re asking for makes financial sense for you. Take into account not just the monthly payments you’d make but also potential repair costs. Don’t assume that just because you’ve been approved for a certain loan that you can afford it.
It’s more difficult getting a decent interest rate on a car loan if your credit is bad. But it can still happen. Go into the negotiation prepared to demonstrate that you’re a better credit risk than you look like; bring references or even a co-signer if necessary; and make sure that you’re asking for a realistic amount. With these tips, hopefully you can negotiate a car loan that works for you.