Getting A Car Financed With Bad Credit

Even if your credit history rating is bad it’s still possible to get car financing. Yes, it’s common that many people have a poor credit rating. But even still that doesn’t mean that it’s a barrier to purchasing a new car on credit. And while there are lenders out there who are willing to give car finance with bad credit, keep in mind that the interest on these “subprime” lenders will be high. So, let’s explore your options.

Firstly, let’s examine what exactly is a bad credit rating. A bad credit rating can be caused by a myriad of reasons. It could be a missed credit card or mortgage payment. Or even if you’ve filed for bankruptcy. You may find it interesting to know that a “bad” credit designation doesn’t necessarily mean your credit rating is actually poor. Different lenders use a different set of criteria when determining if an individual’s credit is “bad”. As a loan applicant, credit ratings can be relative.

And even though one company has rejected your application deeming you to be too high a risk, doesn’t mean that all companies will reject your application. So in this respect, there is hope. And bear in mind that the larger the loan, the stricter the terms will be for the borrower. To use this comparison as an example, even if you’ve been turned down on a mortgage application, it doesn’t necessarily mean that you’ll be turned down for car financing because the value of the item in question is considerably less when compared to the value of a home.

As a rule of thumb, it’s not advised to apply to too many companies in the hope that you’ll get lucky and one will accept you. Quite the opposite. Being turned down by many companies will actually contribute to your poor credit score. So keep this in mind. Yes, it does sound like a catch 22 situation. But in this case, the best strategy is to plan out your applications over a period of time and only choose the organizations that you’d actually consider wanting to borrow from.

Also, before you go ahead and make your application, check your credit score to see what it actually is. And with this information on hand, it will give you a good idea of how likely you’ll either be approved or declined. You can check your credit score online to determine if you’ll be approved before a full credit check is performed. A credit-checking agency will do a preliminary “soft” check which will be placed as a note on your credit record. It shouldn’t necessarily show up when a lender goes to make a complete and thorough “hard” check on your car financing.

If you have any existing outstanding loans or debts, make sure to have them fully paid off. Another thing to consider is asking a friend to vouch for you and be your guarantor. This will make your loan application appear more attractive to lenders.

So if you suspect that you most likely do in fact have a bad credit rating, who will give you financing for your car? First off, don’t make the assumption that you’ll have to use a lender who specializes in high-risk clients. And while there are subprime lenders who will give you a loan, the interest that they charge will be exceedingly high.

A majority of the car dealerships will charge anywhere between 0-7% APR, but subprime lenders can charge as much as 50% which makes it incredibly expensive. Investigate lenders who specialize directly in car financing rather than those who only deal with individuals with poor credit ratings. With doing your homework, you may find that there are more attractive deals to suit your needs.

If you haven’t done so already, speak with your banking representative to explore options for credit unions in your area that may loan to you. Some employers may even give you a car loan, so this is something to discuss with your boss.

Now, if you’re not in any particular rush to buy your car, take this time to try to improve your credit score. One way to do this is to take out a credit card. (This too may require some investigation as to the different types of cards out there and what they have to offer, but that is another topic.) Use the credit card to make small purchases but make sure that it’s paid off in full in a timely fashion. A small purchase can be anything from a couch to a moderately priced TV. These small, simple purchases can help improve your credit score.

So if after all this, and you’ve exhausted all available options and a subprime credit agency is your only way to go, shop around. Consult with car dealers, but it’s worth your while to see if you can get a better deal elsewhere. Do some of your research online as some websites will offer a price comparison under a “bad credit” loan section. Whatever path you pursue, make absolutely sure you can make the monthly repayments, keeping a close eye on the Annual Percentage Rate.

You’ll need to be content and comfortable with how much the car will actually cost you in the long term. Keep the price of the car within your financial means. If you take out a secured loan and you’re using your home as collateral, if you fail to make payments the lender can and will ultimately begin repossession proceedings.

This is something you don’t want. As is the case with any contract or agreement, as the axiom goes, always read the fine print. Make sure you understand it thoroughly. For example, will you be penalized if you leave or break the agreement early? Is the mileage limit reasonable on the vehicle? Would an excess in mileage warrant and justify a reasonable charge? Be cautious of lenders who may tack on additional insurance or warranty policies.

Now assuming if you want these, if you shop around they can be found elsewhere and purchased for much less. The upside to all this, even if you’re concerned that you’re potentially going towards a high-interest situation, and even if it is expensive, by taking out a loan or credit agreement and by honouring the repayments and its schedule, ultimately you’ll be improving and restoring your credit rating. In the long run, this is a good thing.

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