It’s easy to feel as though you’re suffocating under bills and collections. However, getting back on your feet financially takes a job and the ability to get there. One of the first questions someone may ask themselves is, am I able to get a car even with outstanding collections? The answer is yes, if you take the right steps. You’ll still have some obstacles to overcome, but if you put the effort in, you’ll be able to get into a vehicle.
What type of bad credit do you have?
There’s a scale when it comes to people with bad credit. There are those whose credit is the result of bad circumstances. They call it situational bad credit. Maybe you lost your job or were hospitalized, got a divorce or had a business that failed. The resulting situation was unforeseen, and most likely a one-time deal. Lenders will be more willing to work with those who have situational bad credit. They probably have some positives on their credit report as well.
Another type of bad credit is the really bad, also known as habitually bad, kind. It means you frequently and consistently have negatives on your report. It’s a pattern. You may see bankruptcies, repossessions, delinquent accounts and bad checks. Don’t despair—you can still pull it together and get a loan. There are even lenders who deal with those who are ready and willing to work on their negative history.
How to get a loan
The first step you’ll need to take with your poor credit is to face it head on. Start looking at your income-to-debt ratio, and budget to start making payments on your existing debt. Even a few months of chipping away at your debts looks good to lenders. Be realistic about what you’ll be able to purchase. If you have habitually bad credit you’ll most likely need to do the following things:
- Have a solid down payment, at least $500-$1000
- Find a co-signer, or have proof of solid employment
- Start making all of your payments on time
- Take steps to get old debt off your credit report
- Be realistic about what you can afford
- Work with a specialty lender
Don’t expect that a new car, and remember that a good used car will get you to and from work and to whatever errands you have.
Working on your credit report
Like the famous saying, if at first you don’t succeed, try, try again. When you first attempt to get a loan, it may not happen. Take a couple months to clean up your credit report. Start by looking for mistakes on your report and getting them removed. Next, check to see if you can remove any debts that are older than seven years.
To get the most accurate picture, get your free annual credit report and make sure it includes all three consumer reporting agencies. This lets you see everything. If you want to challenge debt, send letters to creditors or the credit bureaus. If you don’t get any response or continue to have issues, think about contacting an attorney. Legal aid is available for everyone.
Finally, call creditors who have valid claims. See if you can work out deals, either a payment plan or a reduced settlement. Again, sometimes it just takes the proof that you’re working toward cleaning up your credit to get a loan with a specialty lender.
Work with a non-traditional lender
Not all lenders are the same. Working with in-house financing or lenders who specialize in no or bad credit situations may be the path you need to take. Visit one of these lenders and talk with them. You might be able to get a loan that day, or you may get some instructions on what you’ll need to have or do to secure vehicle financing.
Once you have your auto loan, think of it as an opportunity to start fresh. Pay on time, and continue to improve your credit. If you do—your next ride will be even sweeter.
