You probably already know that your credit score plays a big role in buying a new car. It also decides how likely lenders are to approve your auto loan.
The good news is that if you do have bad credit, you don’t necessarily have to kiss your dream of getting a new set of wheels goodbye! However, you will need to do some research to make sure you’re not taken advantage of.
Keep reading to find out how you can buy a new car without having a good credit score.
Tip #1: Know What You Can Realistically Afford
Financing a car can initially lower your credit score because you’re accumulating debt. But it can help build your credit over the long term if you make all your payments on time. Check your budget and calculate how much of a monthly payment you can afford before you decide on a car.
Don’t exceed the amount of cash you have leftover every month after your expenses. And don’t change your mind if you’re approved for a bigger loan. If you are unable to make payments on time, it can hurt your credit score even more.
Once you have determined your budget, visit King of Cars in Houston. There, you can look at cars in the price range you can afford. This dealership runs a “no credit needed” policy. This means that it is even better for those of you with a low credit score.
2. Know Your Credit Score
Based on the information gathered from three credit bureaus (Experian, Equifax, and TransUnion), your credit score is calculated by the Fair Isaac Corporation (FICO) and used to determine your credit risk.
The main deciding factor of your final credit score is your payment history (paying bills on time), which makes up around a third. Then, what you owe is taken into account – which accounts for around 30 percent of your total credit score.
FICO does not decide if you have a “bad” credit score – rather, the lender viewing your credit decides if you have a good credit rating or not based on your risk profile. Generally, an excellent credit rating is 750 points and above, while a bad credit rating is below 600.
Before you begin any negotiations for a car, you should know what your credit score is. Knowing your score will help you know what to expect – or you could even pick up an error in your credit report that needs to be rectified before you explore your vehicle financing options.
3. Save Up for a Down Payment
When you don’t have a down payment, you pose more risk to the lender because they may have to go through the costly exercise of repossessing your car if you miss your payments.
If you have a low credit score, saving up for a down payment on a car can help you qualify for a loan and you’ll also pay less interest.
The more money you’re able to put down upfront, the less you’ll have to repay every month. You may even be able to afford a more expensive car because your down payment will offset the taxes, interest rates, and fees – so start saving money as soon as you think about buying a new car… you’ll pay less for it in the long run.