Very few consumers can afford to pay cash outright for a new or used car. In most cases, many are only able to finance their car purchases by taking out auto loans from dealerships or credit unions. Unfortunately, not everyone who applies through these agencies is able to secure financing right away. All too often, the reason for their rejection is attributed to their bad credit.
Bad credit is often the result of an individual’s failure to stick to credit agreements. That means a person may have had records of missed or defaulted loan obligations, repossession or bankruptcy. Being in such a situation can be a challenge because it can affect one’s life in a number of ways. For one, loan options are limited and interest rates are often higher. As such, when the need arise, financing can be hard to come by. There is also the trouble of ruined relationships and securing insurance coverage, rental as well as employment.
If you happen to have bad credit and are contemplating to purchase a car, you are probably worried that you won’t be able to secure the financing you require. However, know that bad credit does not necessarily mean you can’t take out a car loan that has a term that fits your situation. There are actually a number of lenders out there that caters to people with bad credit profiles. As such, even if you have a less-than-perfect credit, these lenders can give you the opportunity to have the car that you want by providing you a bad credit auto loan.
Of course, when taking out a bad credit auto loan, it pays to be careful to ensure you are getting the best deal. So to help you out on your loan application, here are a couple of tips you can follow.
Determine Your Score
Just because someone told you that your credit score is bad doesn’t mean it really is. Don’t take other people’s word for it. Instead, pull out all your reports, which you can get for free from each major credit bureau once a year. Having knowledge of what your real score is will give you enough confidence to go through the loan process. And even if your score is low, keep in mind that one lender can view it differently than the other, so that means there is a chance for you to get to favorable terms.
Save Up for a Down Payment
If you have a particularly low credit score, it is crucial that you save up for a sizeable amount of down payment. At the least, you should prepare 20 percent of a car’s purchasing price if it is new and 11 percent if it is used. While this can be quite expensive for a down payment, bigger money down will not only reduce the amount you will pay over the course of the loan term, but will also show your willingness to pay.
Like most loans, bad credit auto loans come with terms that vary from one lender to another. So before you set foot in a dealership, shop around first. Get quotes from different lenders and compare their rates. While doing this, do not be distracted by offers of lower monthly payments. Rather look at the terms and see the APR. This will tell you which lender can actually give you a good deal over the long term.
Watch Out for Extras Before Signing on the Dotted Line
Don’t be too eager to sign on a bad credit auto loan contract, unless you have studied it carefully. The last thing you want is to be charged with hefty fees for non-essential goods or services that you don’t need. Equally important is to ensure that all the terms indicated in the contract are final, so you will be able to avoid problems in the future that could further put your finances at risk.
Once you have secured a bad credit auto loan, the next best thing you can do is to improve your credit rating and get it right on track. Develop good payment habits and begin to properly manage your other obligations as well. By doing these things consistently, you can be assured that you will be able to repair your credit in no time.