Applying for a car loan while confronting your bad credit history seems an unlikely financial mix. However, prevailing market condition, along with careful review of credit history and financial options make the task not only easier but also highly possible.
Many consumers who are still reeling from financial issues are looking to secure car loans. According to Bankrate.com, the likelihood of a car loan happening with bad credit was almost nil a few years ago. The present economic environment now provides that car financing is also possible for people who have low credit scores.
While these loans may end up on the non-performing columns, lenders remain upbeat on the overall business prospect, CNN Money said in a report. Repossessed cars offer car dealers both the possibility of preventing losses and, at the same time, the potential to make more money. So it is a good business on both ends whether the score that came with the loan application looks promising or not.
Car loans more accessible
Creditors are now more willing to look beyond the scores and consider the circumstances surrounding the bad credit history of some car buyers. In effect, a car loan has become more accessible than ever before, despite the financial challenges of customers.
However, experts point to practical steps that you can take that could reduce the burden of a car financing obligation on top of other regular bills. To secure car loans, applicants need to check on their credit standing, clean it up when possible, and decide on a purchase that is easy on the budget, both near-term and long-term.
A car loan mixed with bad credit is not impossible. However, those opting to do so must take serious note that they are picking up another responsibility for the next few years to come.
Bad credit history? All is not lost
Consumers who are saddled with a bad credit history can still score a car loan with a little careful studying and planning. These days, creditors are willing to accommodate sub-prime loan applications and subsequently approved them in many cases. According to CNN Money, the likelihood of default or delinquent payment no longer deters lenders from extending their arms to loan applicants regardless of the credit scores.
The market condition this year has been more conducive to business compared to the past few years. Creditors are actually willing to process applicants with solid credit credentials as well as those in the mid-level credit standing. The catch, however, in applying for a car loan with bad credit
is facing up to the higher interest rate (Valdes-Dapena 2012).
Now, after mulling over the pros and cons of this important decision (and you remain convinced that you need to drive a new ride soon!), consider the following steps which could make that new car a possibility for you.
The first move in applying for a car loan is studying your credit report
Pore over this document and look for inconsistencies. When you find entries that don't fit, correct them immediately. It is crucial that your credit history is updated regularly, because this report determines your credit score (Johnson 2012). In the US this 3-digit indicator, in turn, tells a lender if you are suitable for a loan. It will also set the interest that you will incur for the life of the approved loan.
Researching on the status of your credit score is also helpful. It will let you know how you stand in the market place. It is best to work on this before actually shopping for a car. Keep in mind that a high score leads to lower rates while a low score results in higher rate payments (Johnson 2012).
Compare available loan rates before signing up
It is best to have a wide choice on an auto financing rate, according to CNN Money, before approaching any car dealer because "going into the dealership with a competitive auto financing deal in hand provides an incentive for the dealer to work hard to beat it." You will probably get offer sheets that exceed what you hold in your hand.
In addition, consumer advocate Linda Sherry told Fox Business that getting in touch with banks, credit union and car dealers will boost your chances of securing the best deal out there. Moreover, if you're on the brink of sealing what appears as an attractive proposal, rather sleep on it for a night to allow more time to analyse the fine print of the deal, Sherry added.
Connect the dots that link your credit score, car loan rates and your actual budget
Your current financial standing must reconcile what your credit history suggests and the interest rates you are contemplating. All expenses must be factored in, including the monthly payments for the vehicle, insurance and maintenance. If calculations prove that you will not be financially offset by the car loan and all its attending obligations, then a loan may likely swing in your favour (Zamarripa 2012).
The best deal is determined by how useful the car would be for you, plus the money and time you will spend in servicing its loan, according to Shauna Zamarripa, writing for Yahoo.
In the event that as a result of having a low credit score the higher interest rates would overstretch your budget in the long-run, it is wise to save up a sizable initial payment first, financial experts said. "Making a high down payment is a good idea in general, but is even more important if you have poor credit," consumer advisor Ronald Montoya told Fox Business. He added that the ideal first payment is at least 20% of the car's purchase price.
Why not settle for a used car instead?
Zamarripa said consumers normally balk at the idea of acquiring financing for a 'beat car', which given the right price can be paid off in a shorter period of time. Still, if reliability is what you're gunning for, this option is practical as well as financially sound. While not exactly the best bargain available because it comes with higher interest rates, buyers with low credit scores and not liquid enough for cash purchase will have better chances of securing this loan (Johnson 2012).
With a deeper look and by employing the help of a trusted car mechanic "second-hand cars can be great deals," according to Fox Business. In contrast, getting a new car, according to Zamarripa is like "paying a ridiculous amount of money on an asset that only loses value over time."
Owning a car offers easier options for everyone these days. Would you consider getting one while in the middle of beefing up your credit credentials?