If your credit is less-than-perfect, you may worry about getting car loan. While it’s true that you’ll typically face a higher interest rate than a borrower with stellar credit, you can still get funding, and you aren’t necessarily stuck dealing with those shady companies that advertise on daytime TV. If you’re able to make regular, monthly payments, you can still find lenders providing car loans for people with bad credit. You’ll have more luck if you look beyond banks and dealerships to non-traditional sources, like credit unions and peer-to-peer lending programs:
Credit Unions
A credit union should be your first stop if you’re concerned about credit and looking for a loan. Credit unions occupy a growing share of the auto loan market, and for members, they often offer flexible payment plans, as well as much lower-than-average interest rates, even for those seeking a bad credit auto loan. While these exact deals may not be available near you, consider asking your local credit union about their options.
Associated Credit Union: If you’re an Atlanta local with a credit score of 670 or below, and you’re looking to fund an auto purchase, try Associated Credit Union’s Rate Reward Auto Loan. The program rewards customers with a percentage point reduction on their interest rate for each year of on-time payments, up to three years. Those financing loans through ACU have the option of delaying their first two payments, thereby giving members more flexibility to save money or straighten up their finances. This is on top of ACU’s already-excellent rates, ranging between 1.75 and 14.49%.
SEFCU: What if your poor credit stems not from money mismanagement, but from a lack of credit history? If you live in upstate New York, then you might consider joining SEFCU, and signing up for one of their First Time Borrower loans. If you meet their requirements, SEFCU can help you purchase your first car and improve your credit all at the same time.
All members of the armed forces and their families are eligible to bank with NFCU. Navy Federal members can also receive an auto loan for between 1.49 and 5.29%. If they’re signed up for direct deposit, active duty military members can also receive a 0.25% discount on their auto loan. With poor credit, even a little bit helps.
Choosing a credit union with which you have an existing relationship has an additional advantage. If your lender knows you, they may be more willing to consider your personal circumstances – such as a job loss from which you’ve since recovered – when deciding your loan terms.
Peer-to-Peer Lending Services
Before the widespread-use of credit card companies and banks, people used to get quick cash from other people. Thanks to the internet, those days are back. Peer-to-peer lending sites usually have the same general model: by matching individual borrowers with individual lenders, they help lenders build a portfolio and borrowers get the money they need – even if they’re seeking car loans for bad credit. However, these sites typically require higher interest rates than credit unions, and lack their personal service.
Lending Club: Founded in 2007, Lending Club promises an alternative to the high rates and piles of paperwork offered at banks. It has funded almost $3.4 billion worth of loans and paid its investors over $311 million in interest. Borrowers can access loans of between $1, 000 and $35, 000, to be paid off in 36- or 60-month terms.
Pros: Lending Club grades all of their loans between A1 and G5, offering a wide variety of interest rate options. A-Grade loans currently range between 6.03 and 8.90%, and B-Grade between 9.67 and 13.53%. The highest rate is 26.06%, making Lending Club a better deal for high-risk borrowers than Prosper, if you can get approved.
Cons: Prospective borrowers at Lending Club undergo a rigorous vetting process, and in the end, less than 10% are approved. This will probably make you feel better if you’re considering investing, but as a borrower, be aware that the average FICO score for a customer receiving a Lending Club loan is still 702.
Pros: In some ways, Prosper’s system operates more like your neighborhood credit union. Potential lenders can read your story and factor this into their lending decision. The site also takes into account whether you’ve successfully completed a previous Prosper loan, so your personal history with the site can become an asset.Prosper: Since 2007, Prosper has facilitated $692 million in loans to over 2 million people. The company funds loans between $2, 000 and $35, 000, with 3- and 5-year terms, and allows borrowers to provide supplemental information to their investors, including endorsements from their friends and a CV of community involvement.
Cons: You may find it easier to get approved with Prosper than Lending Club, but if the site rates your credit as poor, the highest borrower rate is currently 30.59%.
Conclusion
Though they may require more research and negotiation, auto loans for bad credit are by no means impossible, and you may not have to accept sky-high interest rates or a hefty down payment. In order to avoid further damage to your credit, though, do try to find funding for your auto loan quickly, as each inquiry dings your credit score. If you restrict your applications to a one-month period, damage should be minimal, and you’ll be on your way to a successful auto loan – and hopefully, better future credit.
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