If you wonder how to finance a truck with bad credit, the answer is by paying higher interest rates.
The lenders charge higher interest rates because your credit scores decide based on the credit score whether to give a loan or not.
Taking some time to build your credit may help increase your chances of approval and reduce loan costs.
But if you need a truck right now, you might look for a financing solution that fits your needs and budget.
Here are some quick tips to find financing for a truck with bad credit.
How can you get financed for a truck with bad credit?
A credit score is considered fair or poor if it falls below 670 on the FICO score, which goes from 300 to 850.
Lenders check a person's credit score to decide whether to approve their truck loan request or not.
The below steps can help you to improve your credit score. A better credit score increases your chances of getting approved for a truck loan that fits your budget.
1. Check your credit
Before truck shopping, monitor your FICO credit rating. By doing so, you'll know what a lender will see when evaluating your credit score.
Review your credit reports for any incorrect information and dispute those errors. Inaccuracies could lower your credit scores and hurt your ability to qualify for a loan.
By checking your credit score in advance, you may give yourself the chance to make adjustments and potentially increase your scores before applying.
Try to understand why do you have a bad credit score. Check for existing items that may hurt your credit scores such as delinquent accounts, inaccuracies, and disputes, or any remaining debts.
If your credit score is low, fix it by taking the below steps:
- Make on-time payments.
- Clear your existing debt.
- Don’t apply for multiple credit cards.
Improving your credit scores may help you get better terms and lower the interest rate. That should save you money over time.
2. Save for a down payment
If you have a regular income stream, put some money aside for a down payment for your truck loan.
Saving money for your truck loan down payment is a good idea.
The bigger is your down payment, the more likely it is to have the loan request be approved.
Even if your credit score is low, a down payment helps you to easier qualify for an auto loan.
It's less stress on the lender who takes all the risk if you don't repay the load.
The more money you put down, the less you need to borrow for the truck. A bigger down payment decreases your interest rate.
Down payments show lenders that you have some skin in the game and that you are serious about paying off your truck loan.
3. Determine how much can you afford
Before you decide on the truck brand and model, do some math.
Before buying it, consider two major things:
How much you'll need as a down payment (we've talked about this above).
What will be the monthly cost of having the truck and will afford it or not.
To understand that think beyond your monthly loan payment. Figure out how much you can afford to borrow.
Then, consider the costs of truck ownership such as fuel, regular maintenance, auto insurance, and any parking expenses or property taxes and factor them into your budget.
It may be tempting to stretch your loan term to six or seven years in exchange for a lower monthly payment.
But keep in mind that a longer auto loan term means that you could end up paying more in interest over the length of the loan. Also, you increase the risk of becoming upside-down on your loan, which can create some challenges when it’s time to sell or trade-in your car because you’ll owe more than it’s worth.
4. Compare rates for bad credit truck loans from multiple lenders
When you look to find a truck loan, compare multiple loan offers.
Check and compare financing terms and interest rates for bad credit auto loans offered by a variety of lenders. That kind of research helps you to find the truck loan amount that you afford to pay.
If you're having trouble getting approved for a loan from a conventional lender, take a look at lenders that are known for working with people that have lower credit scores. These lenders may offer loans at higher interest rates, but they help those with poor credit scores get approved.
5. Get pre-approved
Pre-approval is when a lender checks your credit and financial details and tells you how much of a loan they would be willing to give you.
That should give you a better idea of what you can afford.
When you know that, it takes some of the stress out of worrying whether you'll be approved for a truck loan or not.
Once you have a pre-approval letter in hand, it will not only help you understand which vehicles are in your price range, but you may be able to use a record of your pre-approval to negotiate the purchase price.
Getting pre-approved for a loan, especially when you have bad credit, can save you some truck heartbreak.