How to Finance Your Car with No or Low Credit


Unlike the 1 per cent who can pay off their car’s full price in a single transaction, most people have to rely on a car loan to finance their car via monthly payments for a certain number of years. The right type of auto financing can provide an individual with the car that they need along with monthly payments that don’t hurt the wallet.

The good news is that auto financing has evolved to a point when even those with no or low credit can qualify for them. If low to no credit is something that you’re terribly familiar with, then don’t despair, because in this article, Carmudi shows you how you can finance a car with no or bad credit in the Philippines:

## Evaluate your finances

Before you even think of applying for a loan, you need to take a long hard look at your finances and identify how much you can really allot toward car payments and other car ownership expenses such as insurance, upkeep, repairs, and fuel.

Lenders will take you more seriously if you can drop a hefty down payment and keep your payments well below the 33.3 percent of your gross monthly income. So this early, focus on saving up that down payment, if you haven’t already.

## Know your credit score

Your credit score can determine how much you’ll pay for your loan. Even if you already know that you have bad credit, it can still help to know the actual amount.

A near-good credit score can help you get a lower car loan rate than one that’s actually bad. It is also important to confirm the accuracy of your credit score. Who knows, a little correction may be all it takes to turn it from bad to good.
## Check auto loan rates

If you’ve already narrowed your search to three to five cars, take advantage of loan calculators provided by different insurance providers to help you estimate payments.

Don’t assume that with little to no credit, your only financing choice is a bad credit auto financing dealer. It’s a well-known fact that bad credit dealership financing can be very expensive, so you’ll be better served by knowing that there are a lot of other options out there that are even more affordable.

Shop around with local banks or credit unions who offer car loans for people with bad credit. These institutions tend to be more flexible than large banks and are definitely more affordable than poor credit car dealerships.

## Consider the length of the loan

Identify which cars you can afford, and remember that longer payment terms can give you lower monthlies at the expense of higher interest over the life of the bad credit car finance loan. Some borrowers offer loan terms as long as six years and even longer.

Although they provide you with minimal monthly payments, such terms can cause you spend a lot more than the car is actually worth. If saving money is a priority, then you need to choose the shortest term that has the least impact on your spending.

## Get a cosigner

If someone in good financial standing is willing to back your auto loan, it can help convince lenders of your ability to pay. A cosigner can guarantee to the bad credit auto loan lender that he can recover the lent amount, so that can help your case significantly.

On that note, remember that a cosigner is just so you can have someone to fall back on when finances get tight. Don’t make it as an excuse not to make your payments, or you could end up burning bridges with someone close to you if you don’t.

## Put off buying for a few months

If you can’t secure a car loan now because of your financial situation, you might want to delay applying for a poor credit auto loan after a few months, when your situation improves.

For instance, maybe the reason that you weren’t approved is because you had little to no credit and are out of work. Perhaps getting a job is all it takes to convince the lender of your ability to pay. After all, a low credit score can appear more attractive if it is accompanied by a steady stream of income that you can use to support your payments.

## Obtain in-house dealership financing

If you really need a set of wheels ASAP, then by all means, go with in-house dealership financing. Dealerships approve auto loans pretty quickly because they can process auto loans for people with bad credit independently, albeit at a higher interest rate than most providers.

As long as you know what you’re going into, and are confident that you can see the payments through, then there’s no reason that in-house bad credit auto financing can’t work for you.

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