Tips for obtaining auto loans with bad credit

Even if you have bad credit, an auto loan isn't necessarily out of reach. Some lenders even specialize in so-called 'sub-prime' borrowers, or those with bad credit, so you'll likely have no shortage of offers if you're looking for a car loan. However, you'll usually pay the price in terms of a higher interest rate and/or a longer loan term, both of which will increase the total cost of your loan.

Shop around
The auto loan business is very competitive. The rate you're offered could vary dramatically from lender to lender, so shop around to see what types of deals you can get. The internet makes comparison shopping easier than ever, as you can often get quotes from a variety of lenders without even stepping outside of your house. Many car dealers even have their own internet sales divisions these days. If you can get written quotes from a number of different sources, ask your favorite dealer or finance company if it can match the lowest rate.

Don't forget about your bank or credit union
While it may be easiest to get a car loan directly from a dealer, it's not always the lowest cost option. Banks - especially smaller local banks and credit unions - focus on serving small communities and often have good rates, even for buyers with bad credit. This is particularly true if you already have a relationship with the institution.

Find a co-signer
If you can't find a reasonably priced loan on your own, consider a co-signer. A co-signer becomes legally responsible for the repayment of the loan, so the most typical co-signer is usually a parent or relative. If you have bad credit, you'll benefit from the lower rates offered to your co-signer, assuming he or she has better credit than you.

Put up collateral
If you have a valuable asset, such as a home, you can offer that up as collateral in order to get what's known as a secured loan. This can be a particularly risky path, however; if you can't make your payments you'll lose the collateral to the finance company. However, it may be easier to find a willing lender if you have some collateral to offer as backup.

Pay attention to loan terms
A common tactic lenders use when financing buyers with bad credit is to offer attractive monthly payment rates. If you focus solely on the amount of your monthly payment, you might overlook the total cost of your loan. While a $350 monthly payment might sound appealing, remember that paying $450 a month over 60 months results in a much lower total outlay than paying $350 per month for 84 months.


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