If your credit score is less than ideal, it can be challenging to find financing for a vehicle. We turned to our readers for advice on overcoming this scenario. Keep reading to hear their top tips to help you get behind the wheel of a new-to-you car.
Jenna Lofton from StockHitter. Jenna Lofton is a Certified Financial Advisor, and small business owner currently living in New York City.
When you buy a car with a bad credit history or no credit track record at all, it can be difficult to finance the purchase because of your low credit score and poor payment history.
In this case, some companies finance used cars for people like you when banks won’t. These organizations will not lend to borrowers who need a co-signer on their loan applications. Instead, they look solely at the applicant’s income and assets regardless of how much debt they already have or if they have none at all. The typical situation is that applicants approached these companies after several unsuccessful attempts at applying for loans through traditional sources with no success. If an individual has had any previous credit mishaps, or if they have never had an established credit history, then these loan companies are the only ones who can help.
When you don’t have a good credit score and may be unable to get a typical car loan, there are still some options available. One option is cash-basis financing. With this type of loan, the borrower pays only for the vehicle in full upfront and does not make monthly payments during ownership.
Cash-basis finance is ideal for people who need immediate transportation that they can afford without long-term debt obligations or those with damaged credit ratings but stable income and assets (savings accounts or property) that prove their ability to repay debt. Loan repayment periods vary by state because each state has its regulations. No additional insurance or registration fees are required for this type of loan
Home Equity Line of Credit
Finding a lender who will offer a loan for a vehicle with a salvage title can be difficult, even with a good credit score. The lower your credit score is, the less chance you’ll find a lender willing to work with you.
People with low credit scores pay higher interest rates, and people financing salvage title vehicles pay higher interest rates. When you combine both of those factors, your interest rates may be astronomical, even if you can secure financing.
Consider turning to your friends or family for financing. Don’t be upset if they turn you down, though. They have to consider their financial wellbeing.
If you have equity in your house, you may want to consider a home equity line of credit to pay for your vehicle.
The best thing you can do if you have a low credit rating and are considering buying a salvaged title car is to wait and save the money. If you can avoid taking out a loan in the first place, you won’t waste a single penny on interest.
4 Ways to Finance a Rebuilt Car When You Have a Low Credit Score
While the financing options available to you when buying a branded title car with a low credit score are limited, there are still some out there.
1. The best option that we would recommend is starting with local credit unions. We have found that many credit unions do not look at the condition or previous history of the vehicle as they care more about the borrower. This can be positive and negative as they will care more about your credit. You can navigate around this by providing them a high down payment and possibly offering a second form of collateral. They may initially turn you down due to your score, but make sure to sit down with the loan officers and explain the situation, so you can find a way around it.
2. A second option is to buy directly from a dealership that carries their own financing. The rates may be higher, but these dealerships also know that the vehicle you purchase from them needs to last the term of the loan, so they will likely have vetted the vehicle already. Make sure they report your payment history as well so you can get a credit boost in the process.
3. If the amount you are looking to finance is relatively low, try to find a lender that will provide you a personal loan or the like. You may be able to find some from $5,000 to $10,000, but the rates will be very high, and it will require you to do your homework to find them.
4. Lastly, you can try to sidestep the entire credit score and go directly to a personal source. Think of a family member or friend that could loan you money. Make sure that you take it upon yourself to create a contract that will outline the exact terms of the loan so they can feel sure that you will pay them back and then hold yourself accountable for it.
Ask the Car Dealer for Assistance
If you’re getting a branded title car from a dealer, most will work with you with a poor credit score. You’ll need to provide proof of income, usually in the form of your last tax return or last three bank statements. The dealer will usually find a lender to work with you, though you’ll be paying more than someone with decent credit.
It’s also possible to get a personal loan, as the cost of branded title vehicles tends to be significantly lower. It would be subject to approval from the lender, but banks will often approve customers in good standing.
Use Robinhood Gold’s Margin Feature
One out-of-the-box way to finance a car with low credit is to use Robinhood Gold’s margin feature. This method is for people who have enough money on hand but don’t want to blow all of their savings on a car and have bad credit.
First, open a Robinhood investment account and apply for Robinhood Gold. As long as you have over $2,000, you will be approved and they will usually give you about 50% of your investment account in the margin. Margin is just borrowed money that you can use to invest.
Now, you can use Robinhood’s margin to continue investing while also withdrawing your cash to pay for the car. The amount in your investment account will be the same (your cash was replaced by Robinhood’s cash) and you can use your cash to pay for the car.
You’ve essentially taken out a low-interest loan (2.5%) through Robinhood. You can continue investing as usual and slowly repay the margin, just like you would for a loan.
Pay With Cash Up Front or Find Someone Who Can Co-Sign
Buying a rebuilt or branded title car can come with significant savings compared to standard vehicles. If you want to take advantage of the savings provided by purchasing a title car but you have bad credit, you may want to try to pay with cash up front. If you can’t afford to pay for the whole car upfront, try to make as large a payment as possible. Some sellers will prioritize money in their pocket now over finding a buyer with great credit.
Another option is to find someone with good credit who can co-sign the agreement. They will need to understand that they will become liable for paying off the vehicle if you are not able to make payments. For this reason, you should only get a co-signer if both of you are confident you won’t leave them in the dust.