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How to get a car loan with bad credit

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  • To get a car loan with bad credit, start by saving a down payment, checking your credit score, and setting a budget.
  • Then, shop around for loans and choose an offer. Anyone buying a car with bad credit should consider saving more for a down payment, or consider finding a co-signer.
  • Buying a car with poor credit will cost more in interest, so it may be worth waiting and working to raise your credit score if possible. 
  • See Business Insider’s picks for the best auto loans »

Buying a car with bad credit could mean that you’ll spend a bit more to borrow.

The steps will be largely the same — you’ll still want to shop around for your loan and compare offers, and get your car the same way. But, with poor credit, getting a car loan will cost you more, as banks will charge higher interest rates to lend to you.

Generally, people with good credit scores between 661 and 780 see interest rates about 3% lower than those with scores between 601 and 660, as Business Insider’s Tanza Loudenback reports. To combat this, you might want to consider waiting to buy to improve your credit, saving a larger down payment, or finding a co-signer. 

Here are the seven steps to take to get an auto loan, even with less-than-perfect credit.

1. Save up a large down payment

To get a car loan with bad credit, start by saving a down payment. Generally, a 20% down payment is recommended for a car purchase. But to buy a car with poor credit, the larger down payment you have, the better. 

Making a large down payment can help you get approved for your loan easier. The down payment helps to decrease the amount you’ll owe compared to the car’s value, also called the loan-to-value ratio. The more you can save for a down payment, the less risky banks will see your purchase. 

2. Check your credit — and improve it if you have time

Your credit score is like a lender’s version of a GPA. It’s a three-digit score that falls between 300 and 850, and looks at your borrowing, payment, and credit application history.

Well before you need a loan (if you can manage it) check your credit score to know exactly where your score falls. You’ll need to know this in order to shop for loans, as many lenders do have minimum credit score requirements. There are plenty of ways to check your score for free online

Your score will fall into one of five categories, according to FICO:

  • Very poor: below 579
  • Fair: between 580 and 669
  • Good: between 670 and 739
  • Very good: between 740 and 799
  • Exceptional: above 800

If you have the time, you might want to consider putting off your purchase to raise your credit score. To start, check your credit report for errors, dispute any errors you find, and pay off other debt from loans and credit cards.

3. Figure out how much you can afford to spend each month on your car payment

Find a budget that works for you each month. Look back at what you’ve spent over the past few months and list out all of your monthly recurring expenses, including debt repayment, housing costs, and other bills and expenses. Then, set an amount for how much you’d like to save for other goals, like retirement or a down payment. Subtract your total amount of expenses and savings from your income, and you’ll have an idea of what you have left over each month. Then, find a car you can afford with the money you have available.

Remember that if you have bad credit, you will likely have a higher monthly payment thanks to interest. The average interest rate for a used car buyer with subprime credit, or scores between 501 and 600, was 16.89% in the third quarter of 2019, according to Experian. The less you need to borrow, the less you’ll have to pay in interest, so finding an affordable vehicle is a good way to keep expenses down.

4. If you have to, find someone to co-sign for you

If you’re looking to buy a car with poor credit or a thin credit file, you’ve probably considered adding a co-signer. A co-signer is someone who is also listed on the loan, and will be held responsible for making payments if you stop paying. Generally, people ask relatives or parents to co-sign. 

Having a co-signer could dramatically reduce the amount you’ll have to pay in interest, and make it easier to get approved. But, it’s a big risk to the other person: Any missed payments will also impact their credit, and taking on this loan could affect the co-signer’s ability to qualify for other credit.

However, it is possible to eventually remove a co-signer through refinancing once you’ve improved your credit score. 

5. Shop around for loans

You’ll want to shop around for your loan, and look for the loan with the lowest interest rate and the best monthly payment for your budget. Once you start applying for auto loans, you’ll have two weeks to apply to as many as you’d like and have them all show up as one inquiry on your credit report. 

To get started with you auto loan shopping, consider these options: 

  • Local credit unions: Credit unions are member-owned banking intuitions, and typically, offer lower interest rates on loans. They often have membership requirements, such as a job at a certain company or residence in a certain area.
  • Banks you already have a relationship with: If you have savings or checking accounts at a bank that offers loans, it might be worth checking with them. 
  • Online lenders: There are lots of online lenders to try if you’re searching for an auto loan, and you might find that they offer some competitive rates. 

6. Explore dealer financing as a last resort

If you have poor credit, it might be worth avoiding “buy here, pay here” dealerships. While the allure of guaranteed financing might sound nice, the reality is that high interest rates often mean high default rates.

According to data collected by the National Independent Auto Dealers Association, more than a third of these loans (35.5%) ended in default in 2018, further damaging credit. Make this a last resort.

7. Pick a loan you were approved for, and accept the offer

Once you’ve found a loan you’re happy with, accept that offer. Generally, the bank will either send you a blank check to fill out once you’ve settled on a deal, or will arrange the financing with the dealership directly. Then, you’ll get your car. 

8. Make the payments on time, and use this as an opportunity to raise your score

It’s important to see this car loan as an opportunity: It’s giving you a valuable chance to raise your credit score by making your payments in full and on time. 

Setting up automatic payments, where you authorize your lender to take a monthly payment from your bank account, could be a good way to do this. Then, there’s no chance you’ll forget to make a payment. Additionally, some lenders will offer discounts for setting up auto-pay. 

As you build your payment history and your credit score starts to rise, it should be easier to refinance your auto loan or get other credit in the future.  

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Evicted California renters at greater risk of getting COVID-19

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After 70 years in Monterey County, 87-year-old Mary Martinez moved in the middle of a pandemic, evicted from her modest one-bedroom, second-floor apartment at 1118 Parkside St. in north Salinas.

According to her former landlord, Martinez was evicted because she allowed a “violent man” to live with her, violating the conditions of her lease. Martinez said the man is her epileptic nephew.

Advocates say that while evictions like Martinez’s are rarer during the pandemic, landlords are feeling the financial squeeze. Some have sold rental properties to make up for lack of income. That can leave renters out in the cold when their new landlord raises the rent by hundreds of dollars or requires all renters move out before they take over the building.

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New program to help Black-owned online businesses | Technology

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ATLANTA _ Many Black entrepreneurs struggle to get bank loans and professional help to launch new businesses. A new program aims to remove those stumbling blocks.

An Atlanta nonprofit and another business have committed $150 million to the 1 Million Black Businesses effort, which will make loans and provide financial and business advice to Black-owned startups and established small businesses. Atlanta-based nonprofit Operation Hope, which helps consumers improve credit scores, is kicking in $20 million, and Shopify, the online e-commerce is adding another $130 million for the loans and website-hosting services.

Other services firms providing expertise or help include Aprio, an Atlanta-based accounting firm, and First Horizon Bank.

It’s a package of products that many Black entrepreneurs couldn’t get through a bank or credit union, said John Hope Bryant, CEO of Operation Hope.

“A bank won’t lend you money unless you can prove that you don’t need it,” Bryant said. “That’s especially true with minority-owned small businesses.”

Small businesses with Black owners were half as likely to obtain business loans as whites, according to a Federal Reserve survey published earlier this year.

The initiative is the latest effort to help Black consumers and businesses enter the financial mainstream. Earlier this month, a group that includes rapper Killer Mike opened a digital bank aimed at Black and Latino consumers.

Banks and credit unions have tried for years to help Black consumers open checking and savings accounts. The efforts helped, as the number of U.S. households without bank accounts fell to 5.4% in 2019 from 6.5% in 2017, the Federal Deposit Insurance Corp. said Monday.

Consumers who own checking and savings accounts typically have access loans with better rates and a wider variety of financial services.

The federal government’s $660 billion loan initiative for businesses hit by COVID-19, the Paycheck Protection Program, also helped few Black-owned businesses, Bryant said. PPP loans were based on a company’s number of employees and its rent obligations. many Black-owned small businesses typically didn’t have enough workers to qualify and are based out of the owner’s residence.

Bryant said a bad credit history may not prevent applicants from receiving a loan.

He hopes more companies will contribute services such as insurance advice or software typically available only to well-established businesses.

Bryant noted that 1MBB is not a charitable organization, as participating companies like Shopify will likely get a pipeline of new business customers through the program.

“This is not pure philanthropy,” he said. “Shopify believes that Black-owned businesses are good businesses if they’re properly supported.”

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This Week’s Top Car Deals & Analysis – October 30, 2020

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The final days of October offer a chance to take advantage of outstanding model year-end deals. Most offers end November 2, which means there isn’t much time left to enjoy this month’s best lease deals and deepest new car discounts. We even found incentives that can help those with bad credit buy a new or used car.

2021 car deals. Interestingly, 2021 new car incentives are showing some surprises. For example, Audi is already offering up to $12,000 in savings when leasing the 2021 e-tron all-electric crossover. We even learned that the new Genesis GV80 SUV will debut with a $589/month lease deal plus special financing rates.

Believe it or not, the 2021 Hyundai Veloster N could prove to be a great value despite a nearly $4,700 price increase compared to the previous year. That’s because our analysis finds that better incentives can make it just $10/month more expensive to lease than the 2020 model. Talk about getting more for your money.

Why are small cars bad to lease? Even though smaller cars typically come with lower price tags, that isn’t always the case when leasing. A mix of lower discounts, worse residual values, and smaller discounts can actually make a Nissan Altima cheaper than a Versa despite having an almost $10,000 difference in MSRP.

Shorter-mileage leases. More brands are offering shorter mileage allowances on car leases. Although this is typically used to offer consumers more flexibility, we’ve found cases in which you can end up getting less for your money. If you don’t read all the fine print, this could make comparison-shopping difficult.

Bad credit car deals. If you have subprime credit, you may find it harder to get financed. However, some manufacturers are offering special incentives to help make cars & trucks more affordable. For example, Chevy is offering $2,000 in down payment assistance plus 9.9% APR for 72 months on the 2020 Trax.

$0 down leases. If you’re adamant about now putting down any money on a lease, you’ll love Sign & Drive leases. In addition to requiring no money down, $0 down lease deals can cover your first month’s payment. Even hot sellers like the Honda CR-V Hybrid offer $0 down and as little as $330/month on a lease.

The high cost of safety? Even though most major automakers are offering more safety features than ever before, our analysis finds that the highest IIHS safety ratings still require costly options in 2020. That’s starting to change, but the cost of buying a car with the most bragging rights is still very high.

Disaster relief. Those affected by some of this year’s natural disasters should be aware that automakers are offering assistance. California wildfire assistance programs like Ford Employee Pricing can save thousands when replacing a car. Similarly, a 2020 hurricane relief program from GM offers $1,000 in savings.

Spooky loan situations. There are some scary scenarios you can avoid when getting a car loan. However, boosting your credit score is possible with some determination because negative items on your credit report fall off after 7 years. Our network of dealers is specially equipped to help those with bad credit.

Upcoming vehicles. Genesis finally revealed the new GV70, a small luxury crossover based on the highly-rated G70 sedan. Whether it’s a redesigned car, truck, or SUV, odds are you’ll find it on our Previews page. That said, as we reported last week, discounts ahead of a redesign can result in substantial savings.

This Month’s Cheapest Lease Deals »



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