Bad Credit Car Loan
If you’re one of the many people who have less than perfect credit, you may feel that you have no hope of borrowing money to buy a car. But, this is just not the case. In fact, so many people have bad credit, that there has sprung up an entire segment of the loans industry, to cater to this segment of the car loan market. This kind of loan even has it’s own name: the “bad credit car loan” or “bad credit auto loan” depending on your preference for “car” or “auto”.
Although having bad credit is not something to be proud of, the truth is that it can happen to almost anyone under certain circumstances, and not necessarily because of lax and undisciplined handling of one’s finances.
If your personal finances are in a less than perfect state, you may still be able to get a bad credit auto loan to purchase a new or used vehicle, if you can demonstrate to certain bad credit lenders that you do have a good ability to make the payments in spite of having a poor credit rating.
Always keep in mind that with some time and effort on your part, you can turn a bad credit rating into an acceptable or even a good one, and fulfilling obligations on bad credit auto loans is one of the ways that a bad credit rating can be improved over time.
How to go about getting a bad credit auto loan
First things first - don’t ever purchase an automobile and take on car payments that you know in your heart you truly cannot afford. Work out exactly what you can and cannot afford before even talking to a car seller.
Keep in mind that you need to have sufficient income to cover all of the costs of car ownership. Expenses like insurance, repairs and maintenance costs, gas and possibly parking. Also, don’t forget that a bad credit car loan is likely going to have a higher interest rate than the interest rate one would pay for a regular car loan.
A bad credit lender would also most likely want to see that you’ve held your current job for at least a year or more. A sufficient and steady income dramatically increases the odds of a lender having confidence that they will be repaid, and a stable address also plays a part in building a lenders confidence and presenting an otherwise stable picture, in spite of having bad credit. Getting approval for a bad credit auto loan is all about convincing someone with money to lend that you will pay them back according to the terms you have agreed to.
There is no question that having a larger down payment will also be a big help in getting the bad credit car loan you are seeking. Your down payment will of course depend on the make and car model you wish to buy, so it could range from hundreds to several thousands of dollars.
Other factors in bad credit car loan approvals
If you want to have a better chance at having your bad credit car loan approved, it might help to be a member of a credit union. Even with bad credit, they may be more open to extending bad credit car loans. Their criteria for extending credit is often more relaxed compared to regular banks and finance companies. The longer you’ve been a member of a credit union the better, and the more likely they are to have a positive response to your request.
In fact, the same thing could work with your local bank - especially if you’ve had positive dealings with them in the past. They may be willing to take a chance with your bad credit car loan application even if you have a bad credit history with other banks or finance companies.
You could also get a bad credit auto loan by having someone who is willing to be a co-signer with you. This significantly reduces the risk to the lender. But, your co-signer must meet all the necessary requirements and have a good credit rating them self, or be willing to provide appropriate collateral (something of significant value that will be surrendered in the event of loan default) for the loan.
Perhaps you have some collateral like a boat, bike, cottage or property that you could pledge to increase the lenders confidence level.
There is no doubt that bad credit will affect your car loan application and the interest rate you will pay (a higher interest rate is justified by the increased perception of risk on the part of the lender), but if you still have no luck with the suggestions above, there are still additional options to explore. Many auto dealers and various car finance companies are equipped to offer customers with less than perfect credit a means to purchase a vehicle. Typically, an aggressive finance manager who is eager to make a deal can and will work with you to get the bad credit car loan that you seek.
The good news is, even people with a bad credit history can be financed on bad credit auto loans. Always consider the cost versus the benefit.
