Car shopping can be a real hassle, no matter your financial situation. But when you have poor credit, the process is even more difficult because there is no guarantee you will be approved for a loan. As someone with experience on the credit desk of an auto finance company, I have firsthand knowledge at what goes into the loan approval process. Here are five tips for people with poor credit that can significantly improve your chances of getting approved for a car loan despite past (or even current) issues.
- Choose the Right Dealership
What many people don’t know is that you won’t always get the same decision when applying for the same vehicle at different dealerships. The reason for this is that some finance companies will “buy deeper” for the dealerships who send them the most business. As a favor for sending a lot of high quality business their way, the finance company will approve some lower quality customers as well. As a customer, there are a few ways for you to use this to your advantage. Although it is almost impossible to know which dealers are most loyal to what finance companies, you are likely better off starting with the largest or most well-known dealers in your area. I would suggest franchise dealers that are linked to a parent auto manufacturer, such as Toyota/Honda/Nissan/etc dealers as opposed to a generic used car lot that sells whatever they can get their hands on. I would also be honest about your situation up front when speaking with the Sales or Finance Manager. Tell them about your credit issues, including why you fell behind on payments and what you are currently doing to address the situation. By doing this they may be able to make a call and discuss your application with the credit analyst before it is declined.
On a related note, it is always recommended to cross-shop dealers in order to get the best deal. Where this can get a little trickier, however, is that typically the finance companies do not want to be caught playing favorites, so most have policies that require their analysts to give the same decision when a “duplicate application” comes in. Because of this, getting declined at the original dealer can make gaining an approval elsewhere harder, but not impossible. If this does happen, the way to get around the duplicate decision policy is to alter the deal in some way. Add a cosigner, change to a different trim level on the vehicle, put a little money down. Now you technically have a different deal to be evaluated, and are eligible for a different decision.
- Look at Older Cars on the Lot
Another lesser known fact about dealers is that most don’t own the cars on their lots. The longer a car sits on their lot the more it costs them, both in terms of dollars and their standing in relation to other dealers. While having one car sitting there unsold for a few months might not matter, an overall higher “Days in Inventory” average might lead to fewer perks from the manufacturer. For example, when a brand new model is released and units are scarce, the dealers who perform best will be rewarded with those first units. Again, your best bet is being honest about your credit and asking the salesperson if they have any vehicles that have been on the lot for a while and are looking to aggressively sell. If so they might be willing to pull some strings to move them off their lot, including giving a discount or asking the finance company for a favor on a customer with poor credit. This happens more often than you might think.
Another common example of something like this is when a manufacturer discontinues a certain model altogether. Dealers become desperate to get rid of any they might still have, knowing the longer it sits there the less likely someone will take it. And although most people have specific vehicles on their wish list, if you have really poor credit you might be wise to go in with an open mind and consider the dealer’s motives as well. You might not leave with the car you wanted, but having your own vehicle is a necessity for a lot of us, in which case any vehicle is better than being rejected altogether.
- Emphasize that you Make Paying Your Car Loan a Priority (So Long as That’s True)
Depending on just how poor your credit is, a busy dealership that moves a lot of cars might be able to get you approved even with your past issues. However, this doesn’t mean you will be happy with the interest rate (or money factor for a lease) that you will receive. The good news is that it is quite common for customers to receive a “bump” to a better tier which carries a lower interest rate/money factor. The best thing you can do to improve your chances of getting one of these bumps, or of simply earning an approval if your credit would typically result in a declined application, is to point out that the bills you’ve missed or paid late are credit cards, medical, etc – but not your car payments. Obviously, this only works if you have in fact paid your previous auto loans on time. If so, you can usually make the argument that you prioritize your auto loan above other bills – usually because you need your car to get to work and make money. If the credit analyst sees this is true, you can typically win them over and gain an approval where you might otherwise have been declined. The truth is, whether you pay your credit cards or utility bills on time doesn’t matter much to your auto finance company. They just need to be confident you will pay their bill on time.
- Establish 3-6 Months of Perfect Payment History
If you know you will be looking for a car in the next few months, make it an absolute priority to pay every bill on time for at least a few months. By doing so, no matter what your credit score is when you fill out that application you will at least have a documented history showing that you’ve turned a corner in recent months. The truth is that dealers want to move cars off their lots just as bad as customers want to be approved, so they will fight for you. But they can’t work magic out of thin air. You need to give them something positive to relay to the credit analysts on the other end of the phone. And since just about all of the people the credit analysts deal with have credit problems, having a story won’t seem like just a convenient excuse so long as there is some evidence on your credit report to back it up. Help your own cause by paying your bills on time before going to the dealership.
- Put as Much Cash Down as Possible
Cash is king. It’s an old saying but it remains true. No matter how bad your credit history is, if you come to the table with half down on just about any car you will be approved 99% of the time. Here’s how the finance company looks at it: they know what the car costs them, and they want to recoup that amount as fast as possible. When you put money down it’s like paying a bunch of monthly payments on Day 1. This significantly decreases the risk they are taking by approving you. In their eyes, if you then decide to stop paying on the loan, they can repossess the car and sell it at auction to make themselves whole. Of course, not everyone has a few thousand dollars to put down, but this is an important option to remember if you are in a jam. If you assume people with poor credit don’t have cash otherwise they wouldn’t have poor credit, you’d be mistaken. I’ve seen many instances where people are able to pay their bills but simply are unwilling for a variety of reasons, and so their credit suffers. But when you tell them their only option to get the car they want is to come up with a few thousand dollars, they will find a way to do it, whether by borrowing, liquidating other assets, etc.
The important thing to remember if you need a car but have bad credit is that the dealer is on your side. They want to move a car off their lot as much as you want to buy one. Keep this in mind and provide them with as much positive information as you can so they can be creative when working with the finance company to get you approved.