Your current vehicle isn’t as reliable or attractive as you’d like, but you’re fearful of buying a new car at the dealership, just to be turned down due to your bad credit score. Or maybe you’re financially stable now, but still repairing the financial damage done after an extended layoff, unanticipated medical bills, or whatever economic issue dragged you down.
The good news is that buying or financing a new or used car can help your credit score bounce back. That’s right: Replacing your less-than-desirable car or SUV with a new vehicle can actually help you achieve your goals of getting back on track with your credit score!
How? A positive record of car-loan payments made on time will help prove that you’re out of the woods, so to speak, with your financial challenges. Over time, this good payment history will push your credit score up, up, up!
But you may still have questions about how your new or used car loan can help raise your poor credit. Here are some of the most commonly asked questions about buying a vehicle and how that impacts your credit and FICO score.
How does a lender view my mediocre or poor credit score?
Let’s be honest. A lender isn’t eager to take a chance on a poor risk. But if you’re showing signs of recovering from your financial difficulties, a lender may be interested in working with you. That’s because they can charge higher interest rates, and they stand to make more money from your loan than from someone with an impeccable credit score.
Your best bet for finding a lender is to try your local small bank or credit union, preferably one that you’ve had a relationship with. This type of lender is more focused on working with community members and extending credit to reasonable members for auto loans. Some dealers may also have a lender they work with to help secure financing for those with poor credit.
Should I try to get pre-approved?
Going through the pre-approval process can give you more confidence. You know that when you go on the car lot that you won’t have to worry about qualifying for an auto loan. Plus, going into your local bank or credit union may help you qualify, especially since you can answer questions about what led to your financial problems. If you truly have turned your financial situation around, a small financial institution is more likely to give you a chance than a larger bank.
If you cannot get pre-approved at a small bank or credit union, you can turn to a lender who specializes in car buyers with bad credit. Some of these lenders offer subprime car loans, which usually come with high interest rates and may use the vehicle as collateral, which means it will be repossessed if you don’t make your payments. If you are forced to work with a subprime lender, make sure you do not have penalties for paying off the balance early and make it a priority to pay down your debt as fast as possible. That way, you won’t pay as much in interest.
Will having a co-signer make the process easier?
If you can find a reliable co-signer, that can indeed make the loan process simpler. You’re more likely to be approved and to qualify for lower interest rates. However, you must be confident that you will be able to make payments, or your co-signer will have to make them in your place.
Will my FICO score go down when I ask for a vehicle loan?
Many dealers will send your loan application to multiple lenders, like banks and credit unions in your area. It’s true that a new inquiry will be noted on your credit report each time one of these financial institutions asks to review your credit, and this can cause your score to drop a few points for each inquiry. However, current credit scoring systems will usually recognize these multiple requests as all being made for the same purpose. That means you won’t get several dings on your credit; in fact, many systems don’t even count auto loan inquiries in their assessments.
Is there anything I can do to improve my credit score before I shop for a vehicle?
You should definitely review your credit report and question any items that are not accurate. If you can make additional payments on outstanding debts, that can also raise your score. Remember that this work can take a few weeks to show on your credit report, so begin the process at least 2 to 3 months before you plan to go car shopping.
Apply for Honda Financing in South Florida
Even with bad credit, shoppers from all over South Florida have successfully improved their FICO scores by taking out car loans at our Honda dealerships in FL. Whether you plan on buying a new Honda CR-V or a quality pre-owned car, our South Florida Honda Dealers are here to help. Contact your nearest Honda SUV dealership in Florida to get your financing pre-approval application started, and be sure to ask about any current Honda financing specials available to you.