How to Snag a Car Loan When Your Credit Has Seen Better Days

So, you’re chomping at the bit to get into that shiny set of wheels, but your credit is, well… less than stellar. Don’t throw in the towel just yet. Just because one door closes, doesn’t mean the garage is out of bounds.

I’m sure you might have heard the drumroll by now – auto loan rejection rates have hit a whopping 11% this year. That’s more than double last year’s rate. Not exactly fun numbers to look at over your morning coffee, right?

A combination of stubborn inflation, high interest rates causing more delinquent car payments, and car prices that are sky-high, have made lenders just a little touchy about approving auto loans. But hey, let’s not let that get us down. Like a bad first date, it’s time to reset our expectations and figure out how to become more appealing… to lenders, that is. So, how about some actionable tips to bet on your horse and make that dream ride a reality?

Give Your Down Payment a Leg Up

Considering more people are failing to keep up with car payments, putting down a significant chunk of change upfront can get lenders to roll out the red carpet. Think about it, new cars depreciate as soon as they leave the lot, much like your enthusiasm wanes after the first week at the gym.

Our resident expert, Bill Liatsis, vice president at Cars.com and general manager at CreditIQ, drives this point home: “Boosting your down payment is like a direct, first-class ticket to lower monthly payments and reduced risk for lenders”.

So, whether you’re reckoning with a vintage beauty or a brand-new speedster, upping the ante on your down payment can win you some serious brownie points with lenders.

Buff Up Your Credit and Try Again

Let’s face it, if your credit’s taken a hit, you’re more likely to be left at the altar by lenders. After all, why would they offer the best rates to a risky bet?

Apparently, over 80% of new car buyers who finance their vehicles have credit scores above the magical “good” threshold of 660. If you’re in the lower strata, you could be hit with steep interest rates that would make anybody wince.

So, what’s a person to do? Well, it’s time to get your financial house in order. Pay down that debt, make your credit card and loan payments on time, and start to watch your credit score climb. Remember, your overall credit report and debt-to-income ratio are also under the microscope when you’re applying for a loan. Every little bit helps!

Tag Team Your Loan Application

The road to credit recovery can be a slow drive, but there’s a turbo-boost available – adding a co-applicant. Bill Liatsis notes, “First-time buyers with little credit history often pull in a co-applicant like a parent or a trusted friend with strong credit credentials, which can give lenders peace of mind”.

Having a cosigner means the loan also shows up on their credit report, incentivizing them to ensure payments are made on time. Nothing like having Mom keep you on track, huh?

Shop Around and Stay Flexible

If your credit’s taken a hit, maybe think used instead of new. You might feel that twinge of heartbreak, but remember, it’s easier to get approved for a lower-priced car. Not to mention, that classic car aroma can be quite charming, right?

But don’t just stop at trying to pinch pennies. Consider a more affordable new car, or look beyond the dealership for financing. Credit unions, banks, or even online lenders might just have the deal you seek.

When it comes to loans, it’s a bit like dating – settling for less than ideal might be the way to go. On-time payments can be a stepping stone to better loans in the future. And in time, you could be riding off into the sunset in your dream car. As Liatsis puts it, “You might not be driving your dream vehicle right away, but diligent, timely payments can pave the way for a grand upgrade”.

Congratulations, you’ve just wrapped up a crash course in snagging an auto loan with not-so-hot credit. Now, go forth and conquer the open road!

Newsletter

Get Your Money Game on Point with Dollar Scholar

Want to bring your A-game to finances? Get proven tips, sound advice, and cute animal photos delivered to your inbox every week. Who were we kidding; we had you at ‘animal photos’, didn’t we?

By clicking “Sign Up,” you agree to receive newsletters and promotions from Money and its partners. You accept Money’s Terms of Use [link] and Privacy Notice [link]. Better know what you’re signing up for!

Meanwhile, In Moneyville:

• 8 Best Car Loan Rates of 2023 [link]
• Owning a Car Now Costs Over $1,000 a Month, on Average [link]
• 10 Best Auto Refinance Companies of 2023 [link]