There are two main types of car loans; ones for people with 550 credit scores and those with 620 or better. People with 550 are considered subprime borrowers, but it is possible to get an auto loan if you have a 550. The first thing is to shop around. Different lenders had different criteria for who qualifies. You want to find out what their requirements are before you apply and then go from there. As far as what to do in the application, fill out all of the information that is required on the form, provide identification that all report all of your income and assets, be truthful (the lender will check), and provide information on how much you can afford to pay each month. (Paying too little can lead to not enough money down, significantly higher payments.) The number one mistake people make when applying for an auto loan with a 550 score is forgetting information or providing inaccurate information. All of the information provided must match the borrower is going to be accepted or not.
Can I Get an Auto Loan with a 550 Credit Score?
It is possible to get an auto loan if you have a 550, but the requirements will be different, and the rates can be higher. The nicer and more expensive the vehicle you want, the harder it will be to get a loan. (As I already said, for those with 550 need to shop around.) If you really want that nice car, you might need to save longer and pay more each month until you can afford one. Getting a car loan with a 550 score means that you will have to pay more interest over the course of your loan.
Auto loan payments are usually amortized over five years. For example, if a person got a car loan for $15,000 with a $300 a month payment and a term of 60 months, the principal’s total amount to the lender would be $11,980. The interest would be $5280, which is an interest rate of 7.7%. In general, people with 550 can expect to pay between 7% and 12%, but they should shop around as rates vary.
Qualifying for a $500 Down Car Loan
Just as with financing a car, you are going to have to qualify for the loan. For example, if you suggested a $500 down payment, but your credit score was low, you could end up having to pay more than that. (I was suggesting a downpayment of 24% of the purchase price.) To qualify for financing of $500, down payments require 720 credit scores or above. The lower the down payment is available, the higher your credit score must be as well. If you do not have enough money saved up for the down-payment and cannot get a co-signer, keep saving until you can. Look at it as if you were buying something else that was nothing but cash and work towards buying cars that way every time. If you make sure that you only buy something when you can afford it fully, your credit report will start showing you as someone consistent in paying their bills on time and honoring obligations, which will show future lenders that they can rely on your word. An established credit report also shows lenders that you can manage your money well and afford higher monthly payments when needed.
How To Improve A Credit Score of 550
When it comes to credit scores, most people believe that a high score is 750 or above. In fact, a high score is anything above 680. Credit scores range from 300 to 850, and higher numbers mean that you are on your way to being someone who can repay a bank loan.
Auto loans require excellent credit. A 560 score might qualify you for a higher interest rate than a person with a 700 score. The better your score, the better the rate you can get, and the more likely you are to qualify for an auto loan with zero down. (A zero down payment would be 24% and 650 credit scores.) As your credit improves, so does your ability to get loans.
What Risks are Associated With 550 Credit Score Car Loans
Or starters, you will not qualify for the lowest interest rates. If you want to pay 750 by the end of 4 years, it will cost you thousands more than someone approved for a lower deal. There is no easy way around this, but a good way to get some paid down interest is by asking your car dealer if they have any incentives or promotions going on. This is where you might be able to get something back like free oil changes for a year or paying your first two years of registration upfront. Sometimes it is as simple as just walking out and saying that you are not getting the deal you wanted and walking away. I would not suggest doing this, but in cases like this where you really like the car, it could be worth trying.
What should I ask about my auto loan company? When applying for an auto loan with less than perfect credit, it is helpful to know some basics about the company giving you that loan. For example, if you know your lender and feel comfortable with them, you can ask them exactly what they need to approve of you.
Conclusion: asking what type of financing they offer before applying can reassure you that you are getting a car loan even if your credit isn’t perfect yet. It might also give you an idea of what kind of payment you’re looking at.
Another thing to ask when called any auto finance company is how much money will I need to take a test drive. Most people really don’t get this question. Still, I think it’s important for a person to walk into a new dealership with cash in hand knowing that he or she has enough money set aside for several weeks’ worth of payments in case everything goes wrong, or the buyer finds something they like better on that second visit across town.
A person shouldn’t buy anything until they can pay cash or make sure that they have enough money set aside for a down payment so that you don’t have to finance the vehicle. If the fender breaks in six months and needs replacing, or forbid if the vehicle has engine problems from day one, a person should have enough money to cover these issues until their car payment becomes available again. There is money left over after this fix. No matter what happens on all manner of things revolving around having bad credit and needing an auto loan, know that there are ways to improve your score without ever having to refinance another loan
Here are your documents you need to apply for 550 Credit Score Car Loan:
- Credit card statement
- Work and paycheck stubs
- Two recent pictures