How to get car finance with bad credit
Are you trying to get a car loan? Do you have a bad credit? There is always a way out. A bad credit car finance as the name indicates is a loan specifically for those people who have a poor credit history.
There are plethora of reasons why you might be having a bad credit rating but there are always ways to improve your chances if you are eager to accept a higher interest rate. But, having bad credit does not imply that you have to get stuck with bad loan tersm.
There may be cases where you have never had a loan but end up with a poor credit rating as lenders do not have access to any proof that you have the power to handle your borrowing effectively.
It is an accepted fact that you cannot get a loan from a mainstream lender if you have bad credit history. But by taking some appropriate steps you can still make sure of a result that would not have an impact on your monthly budget.
Pros and cons of bad credit loans
The biggest benefit of a bad credit loan is that you can actually get to borrow money, which you would not be able to do because of your poor credit history. This loan can provide you the space to breathe for those people who need a loan either to cover a key purchase or may be to strengthen any other debts.
Another benefit is that getting a loan can basically assist people with a bad credit rating to mend their credit status. This can happen in case you make payments timely, show that you can handle your money responsibility.
If we look at the disadvantages, the biggest drawback with this type of loan is that the rate of interest is comparatively high in comparison to standard loans. As those applying for loans have had issue managing their finances previously, they consequently symbolize higher risk factors to the lenders. That is the reason the rates they are offered are much higher than they would have under a normal circumstances with a good credit score.
Let us have a look at some of the steps to get a car loan with bad credit:
Become aware of your credit report
There are some who have a perception that credit is bad based on a low credit score. But this is not the sole reason to measure your credit worthiness. There are also other factors that go into calculating your credit score. Factors like credit score, payment history, length of credit history, credit utilization.
The credit report pinpoints the area which is affecting your score. Try to know why your credit score is low and accordingly take steps to increase it, such as lowering your credit utilization by paying off credit cards.
You should be ever ready to give a detailed explanation as to why you have missed a payment. There are some lenders who might be interested in knowing what the reason of your temporary hardship was. Again auto lenders may give equal weightage to other factors like your present income and the duration you are at your current job.
Know the amount you can afford
Besides credit score and history, the lenders take their decision on your ability to pay. They take into account your current income , monthly expenses in coming to a decision as to how much to lend you. Ensure that your monthly budget can allow for the car, and don’t move away from your budget plan. You may be in a better status buyina new car as it tends to have the best financing terms.
Opt for a bigger down payment
The biggest mistake people make when buying a car is to go for smallest down payment. If you don’t have money to pay a very good down payment your financial condition is not good to buy a car. Also it tells you are not ready to buy a car.
It is wise to put down a bigger down payment and go for less EMI.. It saves cost.
Low rates can differ extensively for potential borrowers with bad credit. So it is good to shop around. Begin with your own bank to have an idea of what they are keen to offer. If under any circumstances your bank refuses to give you the loan, then start exploring some other reputable lenders who specializes in this type of loan.
A word of caution to all loan seekers with bad credit is not to accept the first offer which comes your way. Just shop around to discover what is available. You have the option to go to any dealer websites and fill out a credit application to get pre-approved auto-loan.
There is no reason why you should not shy away from filling out some multiple credit inquiries though it may hurt your credit score in some cases. The auto lenders also have the knowledge that you apply to multiple lenders.
Keep in mind as long as credit inquiries are made within a two-week period, they should not affect your score.
Check into dealer financing
You may discover that a dealer is eager to finance the purchase you like to make. As these loans are financed by a third party, they tend to be more expensive. It is very important on your part to scrutinize all the documents of the loan and find out if there is any additional charges for add-ons you do not require at all.
Also be updated with the financing terms that are conditional as this gives the dealer an opportunity to change the terms of financing after you drive the car off the lot. It is the responsibility of the buyer to ensure that all terms are final before you sign on the dotted line.
Final advice trying to get a loan with bad credit
Check if the loans are unsecured or secured. If it is unsecured the lender will have no claim to your property in case you fail to keep up with your repayments. But if it is secured, it means the loan is secured against your home or any other asset you have.
Suppose you opt for a secured loan, you may pay a lower rate of interest but still your home or other assets can be at risk if you fail to keep up with the repayments.
What is the term you will take in repayment of the loan? Remember if you take a longer time to pay, you end up paying much more interest than if you try to pay it quickly.
You have to remember that interest rates on bad credit loans be inclined to be structured depending on the amount you borrow. Rates generally go down the more you borrow. So in case if you are in a lower tier, take a chance to borrow a little bit more to profit from a lower rate. But it is also important to see that you don’t borrow more than just you can afford to repay.
Hope this post would guide to get bad credit car finance easily. Keep in mind that there are different kinds of loans for people with bad credit. Before settling for a final one, do a lot of research to ensure that you get the best loan that suit your requirements.