How to apply for a car loan [with less-than-ideal credit]

“Bad credit” doesn’t necessarily signal the end of the road for car shoppers. Nor does a lack of established credit history. In fact, many qualified buyers with less-than-ideal credit are still taking the wheel with the help of financing. And they can enjoy a lot of the same conveniences as buyers with stellar credit, such as pre-approval.

Every car shopper’s position is different, and planning your car-buying process may help you understand what’s right for your situation, and how best to achieve it. Here are some tips for how to approach a car loan:

First Stop: the DECU Auto Center!
The DECU Auto Center offers rates, payment calculators, online applications, and other resources. It's a great place to start, and our team of professional Member Advocates are standing by to help answer questions and get you on the road.

Make a Budget
Having a budget and knowing how much car you can afford is essential. You want to be sure your car payment fits in line with your other financial goals. Yes, you may be able to cover $400 a month, but that amount may take away from your monthly savings goal.

If you don’t already have a budget, start with your monthly income after taxes and subtract your usual monthly expenses and how much you plan to put in savings each month. For bills that don’t come every month, such as Amazon Prime or Xbox Live, take the yearly charge and divide it by 12. Then add the result to your monthly budget. If you’re worried you spend too much each month, find simple ways to whittle your budget down.

You’ll also want to plan ahead for new car costs, such as vehicle registration and auto insurance, and regular car maintenance, such as oil changes and basic repairs. By knowing your budget and what to expect, you can easily see how much room you have for a car payment. Determine How Much You Can Afford Once you understand where you are financially, you can decide on a reasonable monthly car payment. For many, a good rule of thumb is to not spend more than 10% of your take-home income on a vehicle. In other words, if you make $50,000 after taxes a year, you shouldn’t spend more than $500 per month on a car. But depending on your budget, you may be better off with a lower payment.

With a payment in mind, you can use an auto loan calculator to figure out the largest loan you can afford. Simply enter in the monthly payment you’d like, the interest rate, and the loan period. And remember that making a larger down payment can reduce your monthly payment. You can also use an auto loan calculator to break down a total loan amount into monthly payments.

Get Pre-approved
Before you ever set foot on a car lot, you’ll want to be pre-approved for a car loan. Research potential loans and then compare the terms, lengths of time, and interest rates to find the best deal. Just know that pre-approved loans only last for a certain amount of time, so it’s best to get pre-approved when you’re nearly ready to shop for a car.

When you’re pre-approved, the lender decides if you’re eligible and how much you’re eligible for. They’ll also tell you what interest rate you qualify for, so you’ll know what you have to work with before you even walk into a dealership. But keep in mind that pre-approved loans aren’t the same as final auto loans. Depending on the car you buy, you’re final loan could be less than what you were pre-approved for.

In most cases, if you are pre-approved, you shouldn’t have any problems getting a final loan. But being pre-approved doesn’t mean you’ll automatically receive a loan when the time comes. Factors such as the info you provided or whether or not the lender agrees on the value of the car can affect the final loan approval. It’s never a deal until it’s a done deal.

Go Shopping
Now you’re ready to look for a new ride. Put in a little time for research, and find cars that are known to be reliable and fit into your budget. You’ll also want to consider size, color, gas mileage, and extra features. Use resources like Consumer Reports to read reviews and get an idea of which cars may be best for you. Once you have narrowed down the car you are interested in, investigate how much it’s worth so you aren’t accidentally duped. Sites such as Kelley Blue Book or Edmunds can help you figure out the going rate for your ideal car. After you’re armed with this information, compare prices at different dealerships in your area. And don’t forget to check dealer incentives and rebates to get the best possible price.

When you work with DECU's Local Auto Dealer Partners, you have the added bonus of ease and convenience. The dealerships within our network can process your auto loan right in their office. Non-DECU Members are even able to join from the dealership.