What's the Best Way to Get a Car Loan If I Have the Income but Not a Good Credit Score?

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As Jalopnik’s resident car buying expert and professional car shopper, I get emails. Lots of emails. I’ve decided to pick a few questions and try to help out. This week we are discussing low credit score purchases, buying a modified car or whether to keep or trade a discontinued car.

First up, what do you do if you can handle the payments but don’t have a good credit score?

Suddenly out of nowhere I was offered a position with another company where I got a salary increase of 60%. Now I have an extra $2,000 per month to spare. I have been driving a 2011 Honda Accord for the last 5 years, that thing is still working flawlessly (mind, just a couple noises here and there), however, I do want to upgrade to something nicer. I really like the Volvo XC40 and the Mercedes Benz GLA 250. My budget can go up to $40k for a new car, however, my main issue is that my credit score is just not the best at the moment, but I can definitely pay off a couple of accounts within a couple of months with my new improved income. My questions are the following; would any dealerships be willing to work with my credit score+my new income? or are all dealerships just strictly looking into credit scores AND THEN your income? I just don’t want to get into a loan with an apr higher than 5%. For the record, my FICO score is at 615. I sent emails to various dealerships but most of them are asking for a minimum credit score of 680.

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Regardless of income, your credit score is going to be one of the key determining factors on what rate you get and it’s not the “dealer” that considers your scores and income, it’s the lenders. A lender sees someone with a low credit score as a higher risk and therefore will charge a higher interest rate. With a FICO of 615 getting a loan at five percent or lower is going to be a challenge, especially since that free score may not be super accurate. There are a few things you can do to boost your score but those tips aren’t likely to get you a 70 or 80 point jump.

That leaves you with basically four options. First, you can hang onto the Accord for a bit until your FICO increases, though this may not be ideal given the age of the car. Second, you can buy the car you want with a higher interest rate as long as the payments are in an appropriate zone You also may be able to refinance this loan later once your score improves. Third, you can find someone with a better credit score that can act as a co-signer for the loan to help get you approved at a better rate. This can be a tough conversation as that other party will take on a risk to their own credit profile if you fall behind on the payments. The fourth option is to buy something that is well below your budget but a suitable replacement for the Accord, take higher APR but use a large down payment to make sure you aren’t underwater on your loan. Once the score increases, then treat yourself to something nicer.

I would definitely shop that loan around with your local bank or credit union to see if you can get a better rate than you would at the dealership.

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Next up, should you roll the dice on a modded car or hold out for a stock example?

I am in the market for a 1st generation Audi s5 with the 4.2 v8 and a 6-speed m/t, that I’m looking to replace my aging b6 a4 with. I found one on facebook that has a vast number of mods, including a full airlift performance suspension, so when parked it is slammed to the ground, custom audio with custom trunk speakers, which appears to have been installed by a quality shop. In addition, it’s got a CAI and Magnaflow exhaust, and some tasteful exterior upgrades. There are only 4 downsides i can see. One, being it has 150k miles. Two being it is said to have a minor coolant leak. Three being not sure of the quality of the installation of the mods. The 4th being that the car is located 5 hours from me, so I can’t simply go and take a look, it is easily a full day affair to see this car. The price is very competitive, especially next to stock s5s of similar, stock, spec. Is it worth biting the bullet or just sticking to stock?

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Buying modified cars can be risky for the points you described, but the fact is that buying the first generation Audi S5 with high miles is a risky purchase as is. Finding quality examples of this model at what I assume is a modest price point is likely to be a challenge anyway. A well-modded car could give you more value for your money or add to the headaches. You always want to get something like this inspected whether it is a local, remote, modded, or stock.

What I would suggest for this particular instance is to find an independent shop near the seller that specializes in either high-performance cars or European imports. Hopefully, that shop is relatively convenient for the seller and he or she is willing to send it over for an inspection.

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Finally, should you toss a car now that it is discontinued?

I have financed my CPO 2015 Smart Fortwo (34,500 miles for $6,500) from Mercedes Benz last year March 2018. However since Daimler had announced that they have killed the smart brand beginning of 2020, I am concerned that whether if I should keep the car until paid off at 2022 or trade it in with negative equity. I financed the car for 48 month at 5% APR with $5,300 remaining and paying $180 per month. This is my very first own (No cosigner) car loan. I maintain my car at the Mercedes dealership at every 10K mile per maintenance schedule but it costs me around $400 per service. The independent shops around my area that service German cars do not work on Smart cars. I am the type of car owner who do not have the time nor skills to wrench on cars.

With the smart car brand dead, I am worried for a possible more expensive future repair & maintenance costs as my car is now out of warranty since last March 2019. I am currently pondering if I should trade it in to upgrade for a new small car. The price gap between new and used compacts is small so I would prefer a new car. I drive around 20,000 miles per year so leasing not an option.

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If you can avoid trading a car in with negative equity that is the better play. You bought an affordable car, and have a pretty low payment. If you still like your Smar car keep it and pay it off. The maintenance may not be cheap, but if you look at your total vehicle expenses you are probably still ahead of the game over a new car with a higher monthly payment.

Furthermore, Smart cars didn’t have great resale value to begin with, and you bought this one already well depreciated. The subsequent depreciation isn’t going to be dramatically impacted by the fact that Smart is a dead brand.

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Got a car buying conundrum that you need some assistance with? Email me at tom.mcparland@jalopnik.com!

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About the author

Tom McParland

Tom is a contributing writer for Jalopnik and runs AutomatchConsulting.com. He saves people money and takes the hassle out of buying or leasing a car. (Facebook.com/AutomatchConsulting)