New parents often face a common dilemma when it comes to their current car. For example, let’s say a husband enjoys riding his old two-seater red convertible. But now that his wife is pregnant, he needs to make room for their child by upgrading his car to a bigger 4 to 6-seat sports utility vehicle or minivan.
A car upgrade is always going to be costly. But what if the husband has bad credit? How will he be able to finance the purchase of a bigger family-style car which holds more passengers? If you are faced with a similar situation, you need to ask yourself these types of questions. A bad credit score might make it challenging to finance a car upgrade, but it does not make it impossible.
Below are the top seven tips on how to afford a car upgrade when you have a bad credit score.
Get a Co-signer
If you find car loans for people with a bad credit score, they will probably have high-interest rates attached to them. They may even require a large down payment to be made upfront.
To help ensure that you get approved for a car loan with low-interest rate and down payment requirements, find a responsible person to co-sign for your car loan. This could be a family member or friend with a good credit score.
A co-signer agrees to take financial responsibility for the car loan in case you default on the repayments. The lender is more willing to offer a loan in this case.
Clean Up Credit File
Whenever you have a bad mark on your credit report, you should work quickly to remove it. If you owe money on outstanding debt, do whatever you can to pay back that debt.
Once the debt is paid, make sure the credit bureaus remove the negative mark from your report. Sometimes they fail to do this if the creditor doesn’t report the back payment.
Apply for a Secured Credit Card
If you have bad credit, it helps to make actual payments on at least one debt. If you cannot get approved for any more traditional credit cards or loans, then try applying for a secured credit card instead.
A secured credit card requires you to make a refundable deposit. Your deposit becomes your credit limit. The creditor takes no risk because your money is the source of the credit. So, they will approve just about any applicant.
As you use the card, you will be making monthly payments toward what you have spent. Keep making those payments on-time, and it’ll help boost your credit score. If your score gets high enough, then perhaps you can get approved for a car loan in the future.
Make a Big Down Payment
If you have the means to make a big down payment on your car loan, it may help persuade the lender to approve your application. If you were to default on the loan, you would lose your down payment and your vehicle. They would be taking less of a risk if you made a bigger payment upfront.
Get an Employer Referral
In some cases, the lender may be persuaded by giving them a referral letter from your employer. If you work for a reputable employer that is well-known and its leadership confirms your impeccable financial situation, then it could help you get approved for the loan.
Use a Home Equity Loan
Do you own a home? Does it have a lot of equity built up? If so, then you might want to think about using a home equity loan to pay for your car.
The advantage of doing this is that your monthly payments toward the home equity loan will be lower than your payments would be toward a car loan. The downside is that your payment terms will be longer and you will end up paying more money in interest.
Sell Your Old Car First
Sometimes you can get more money selling your existing car instead of trading it in at the dealership. Car dealers will never give you a fair value for your vehicle because they will want to resell it themselves. So, if you sell your vehicle privately and get the actual market value for it, then you can use that money toward the purchase of a new car.
However, it is a good idea to get pre-approved for a car loan before selling your existing vehicle. You do not want to end up without a car and then find out that you cannot get approved for a car loan. A pre-approval letter ensures that you will get approved up to a certain amount.