4 October 2017
7 Basic Steps to Easily Obtain a Car Loan With Bad Credit
If you are shopping for an auto loan with bad credit, you may be turned down by many lenders, who consider you a risk borrower, or offered a car loan bad credit option with a very high interest rate. In order to avoid unnecessary high rates and still get a good auto loan with favourable terms, you need to take the following steps:
1. Determine How Urgent You Need a Car
Prior to shopping for your car loan, examine your situation and ask yourself how desperately you need a car. Your car must be an indispensable means of transporting yourself to your work or place of business. If this is not so, it is better to take steps to improve your credit before applying for a car loan. Start paying your bills and loans on time. You can take a secure card and build up your credit score or get a good credit history. It only requires a bank deposit which will be paid back to you if you close your account.
2. Obtain a Credit Report
It is possible to obtain a free credit once in a year and you should do this before going to seek for car financing from a dealer. You don't have to accept the report of your dealer. Make sure you know exactly what your credit score is and why it is low. Also, check for any suspicious activity on your account. Take your credit report along with you when you need to negotiate with would be lenders. Let the lender know why you have a poor score and provide proof that you can easily improve it, which includes: a good and stable source of income, work history, and regular savings.
3. Do Comparison Shopping
The car loan bad credit option may not be popular among lenders but there are enough lenders who are ready to offer it. Some lenders will only offer very high interest loans to bad credit applicants. So instead of assuming that you can't get a loan, do some research and shop around to find out the rates and terms offered by different lenders.
4. Complete Lender Comparison in Two Weeks
It is very important to note that as you contact various lenders to apply for your car loan, they will confirm your credit score. Unfortunately, each time a lender checks your score, it has a negative effect on it. But you can reduce the impact on your score by doing all your research within two weeks. Most scoring models consider all the enquiries made by different auto dealers within two weeks as a single enquiry.
5. Choose a Short Loan Term
When you are shopping for a car loan, you need to pay attention to the loan period and the interest rate. Most lenders will offer you a longer term loan at a higher interest rate. This means you will end up paying more. But shorter term loans usually have lower interest rates. So if you get a dealership that is prepared to offer a lower interest rate, they will usually increase the loan period and put in penalties for early repayment of the principal.
6. Choose a Fairly New Used Car
Ordinarily, older cars will cost you less to buy but they also cost more to maintain. That is why you need to consider the entire cost of operating the car each month in addition to the cost of paying your auto loan. Experts recommend that you should opt for newer used cars that are three years or younger. They usually have less mileage on them and they are usually in top condition without the burden of the 30 to 40 percent depreciation that occurs in the first year after purchase.
7. Consider a Collateral
If you are so desperate to get a car loan with bad credit, you may consider giving your lender a collateral to secure the loan and lower your interest rate. Your collateral could be in form of a piece of property or the car you are buying. Some dealerships will offer you a lower interest rate but they will hold the title of the car until you complete a large portion of your loan payment.
With these simple steps, you should be able to obtain a fair car loan with a bad credit score. Remember to start saving early so you can have a substantial down payment that will help to reduce your interest rate.