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:
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.
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.
“I don’t want to leave”
Nearly half the housing units in Monterey County are renter-occupied and of those renters, about half pay 35% or more of their monthly income in rental costs, according to American Community Survey (ACS).
The same data shows people of color tend to be renters rather than homeowners. People ACS data identified as Hispanic, Latino or Mexican –– such as Martinez –– make up the largest body of renters in the county.
Martinez does not deny violating her lease agreement but said her landlord was looking for an excuse to kick her out since March when he bought her building.
She also said she believed her status as a Section 8 recipient made her a target, an assertion her landlord denied.
According to Martinez, he soured on her after her epileptic nephew suffered a seizure in the bathroom, leaving emergency crews to break down the locked door. Martinez paid about $70 to replace the door, she said
In June, she received a 90-day notice to evict.
“I don’t want to leave,” Martinez said through tears during a July interview. Her voice quavered. She sat on her living room couch, her shoulders slumped.
In August, she closed the door to apartment 10 behind her for the last time.
“Keep the house housed”
At the state level, Assembly Bill 3088, co-authored by California State Senator Anna Caballero (D-Salinas), keeps renters facing hardship due to COVID-19 in their homes.
The legislation, signed by Gov. Gavin Newsom in August, states tenants who have provided qualifying declarations of hardship can’t be evicted before Feb. 1, 2021.
Monterey County, like other counties, passed a similar moratorium early in the pandemic, extending it multiple times to keep it alive until the state legislature could find a solution.
Martinez is not the only person to be evicted or lose their housing during the pandemic. The moratoriums dealt with eviction for nonpayment of rent, not of someone in violation of their lease, as Martinez was. Others saw their landlords sell to new owners who raised the rent an untenable amount.
Far fewer people have been evicted during the pandemic than anticipated, said Joel Hernández Laguna, the lead organizer for Center for Community Advocacy’s (CCA). But in recent months, CCA received a higher-than-usual number of calls about people being forced out of their homes due to rent increases.
“You have to see the other point of view,” said Hernández Laguna, who has worked for CCA for almost nine years. “Some landlords are struggling to make payments on properties they rent out.”
He suspects that resulted in higher property turnover than normal. New owners often stipulate in the purchase contract that all tenants must move out upon sale of the property, or raise the rents so much the current tenants can’t stay, Hernández Laguna said.
“Landlords aren’t able to evict people with the current ordinances so instead are (increasing) the rent,” he said. “Which is another way of pushing them out indirectly.”
Matt Huerta, Director of housing at the Monterey Bay Economic Partnership (MBEP), said housing stakeholders are raising the issue of eviction and housing in MBEP group discussions.
“Our overarching message has been to keep the housed housed,” Huerta said. “Unless it’s a health and safety problem – in terms of the tenant creating a health and safety problem – everyone should be motivated to prevent a large health and safety problem to prevent evictions that will lead to crowded housing and homelessness.”
Phyllis Katz, directing attorney at California Rural Legal Assistance (CRLA) of Monterey County, said while CRLA had not seen any eviction cases during the pandemic, an eviction could lead to the same – or worse – consequences for someone.
“People acquire bad credit by being evicted,” Katz said in an email.
That bad credit can follow renters and can result in their wages being garnished to pay off debts or keep them from renting on their own. The cost of applying to apartments can be prohibitive, too.
“It costs $30-$50 for each application for housing,” Katz said. “People stay with relatives if they can, or in their car, if they can’t until they find housing.”
That can put people at risk, Katz noted.
“Families who go live in crowded conditions with another family are more prone to contracting COVID-19, and suffering illness as a result,” he said.
Health experts say this creates a prime environment for the coronavirus to spread throughout a household.
A June analysis by The Californian and CalMatters showed the hardest-hit neighborhoods had three times the rate of overcrowding and twice the rate of poverty as the neighborhoods that suffered the least. The neighborhoods with the most infections are disproportionately populated by people of color.
“People end up in that situation because they don’t want to become homeless,” Hernández Laguna said. “Families are willing to share an apartment complex or bring someone else into their home to pay the rent. One of the consequences of being evicted is having to overshare a property.”
Personal and financial loss
At first glance, you wouldn’t know Martinez is in the latter half of her ninth decade.
Before the pandemic, she walked to church almost every day for services. When she lived in Salinas, she’d walk to a nearby grocery store to purchase food, and carried it home herself, two blocks and up a flight of stairs.
Martinez’s age puts her at a higher risk of complications from COVID-19, should she contract the virus.
An eviction increases the odds she might encounter the virus, as she is no longer able to safely isolate herself, and moved three times in fewer than two months. Her sisters, who hosted Martinez following her eviction, are also at increased risk. Both women are in their 70s.
Martinez eventually moved to Pueblo, Colo. to stay with her younger sister, Esther, 76.
In the midst of all this, Martinez is struggling with the loss of her nephew, Greg Palacios.
Palacios was diagnosed with cancer shortly after his seizure in Martinez’s bathroom. He moved into hospice care and died over the summer.
Martinez cried as she talked about his death. She was unable to visit him while he was in care hospice due to pandemic-induced restrictions on visitors.
Martinez is wrestling with financial concerns as well.
She can’t afford a new apartment without the six weeks’ worth of rent, she told The Californian. She has little in the way of savings – she never married and worked mainly as a babysitter and a housekeeper.
While she hopes to keep her Section 8 status, she doesn’t know how moving out of state will impact her.
Furthermore, Martinez said she did not receive her deposit back when she moved out and was owed two weeks’ rent.
When reached by phone, her landlord introduced himself as “Pete.” He confirmed he had been Martinez’s landlord, but refused multiple times to give his last name, or say how long he had owned the property.
According to Monterey County Assessor records, 1118 Parkside St., the complex where Martinez used to live, was purchased by Ace Organic in March of 2020, which is headquartered in Salinas. An LLC-12 Statement of Information filed with the Secretary of State shows Peter Quinlan King as the owner of Ace Organic.
King told The Californian he worked in conjunction with the Housing Authority to evict Martinez, informing them on “everything, step by step.” He also pointed out that he had multiple Section 8 tenants on the premises.
“Mary had a violent and unauthorized tenant living there, so that was cause for eviction,” King said when reached for comment.
According to Monterey attorney David Brown, who handles civil matters between landlords and tenants, if Palacios had been on the lease with Martinez, it likely would have been unlawful to evict them due to his seizure.
As Martinez paid for the damage done to the door, Brown said, that might have violated the Americans with Disabilities Act.
“I don’t know for sure but…assuming that was the landlord’s motivation, yeah, that would probably violate the ADA,” Brown said.
King declined to comment further on Martinez’s eviction, or if he planned to return her deposit.
Although Martinez reached out to the Housing Authority for help and spoke regularly with her caseworker, she found herself confused as to whether she truly had to move out, or if her eviction notice was just a warning.
She moved out in August but still had doubts at the time of her departure.
Hernández Laguna urged people facing eviction or unanticipated rent increases to reach out to his organization or CRLA for help.
“Seek help,” he said. “There are protections out there for families.”
In Pueblo, Martinez found a new home with her sister Esther, though she doesn’t like the cold that’s begun to settle in for the Colorado winter.
Esther says she hopes Martinez will stay with her. Pueblo had a low rate of COVID-19 compared to the rest of Colorado, but in recent weeks has seen cases rise. Still, Esther said she feels she and Mary are safe from the virus there.
“I think Mary’s going to stay here,” said Esther. “We’ll go to California to visit.”
Kate Cimini is a reporter with The Salinas Californian. This article is part of The California Divide, a collaboration among newsrooms examining income inequality and economic survival in California.
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.”
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.
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.
$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.