Things To Remember When Getting An Auto Loan For Bad Credit
An unpleasant fact following the great recession is that a lot more people out there have low credit ratings
. This, in turn, makes it harder for people to buy anything that uses their credit standing, like with houses or cars. Fortunately, bad credit car financing is available for those who really need a set of wheels.How it works
The first thing you should remember when looking for bad credit car financing is that it does not totally disregard your low credit score. It is not some magic contract where you come in with a clean slate. Even if you quality for an auto loan for bad credit, your rating will still be there.
Your rating is important even for this kind of loan because it tells businesses like car dealerships how risky it will be to lend you money. People with good Fair Isaac Corporation (FICO) scores find it easy to get loans because the risk is low that they will not be able to pay the lender. This is why they get low down payments and low interest rates.
A person with a low credit rating will be asked to pay a higher down payment, around 10% to 20% of the selling price of whatever you are getting. It actually makes it easier for you to get an auto loan for bad credit if you pay a higher down payment. This tells the lender that you are serious about the loan. Discuss this point carefully with your borrower, though, as you might end up paying a down payment that is more than you can afford.
Your interest rates will also be higher than if you had a good credit rating. If your FICO is low, this tells the potential creditor that you have a past of frequently missing payments, defaulting on loans, or even a bankruptcy filing. The creditor hedges against your higher risk of defaulting (and thus, losing them a good chunk of money) by charging you with a higher interest rate.
Getting a good bargain
There are ways for you to easily get an auto loan for bad credit, and even to improve your FICO score along the way. The first involves your choice of car. Getting an affordable and reliable car makes it easier for you to get a bad credit car loan and make payments to it. A reliable car is also easier to maintain, demanding less money to keep it running. This helps ease the burden on your finances.
Aside from practical concerns, getting an affordable and reliable car gives you a better chance to stay current with your payments. On-time payments are one of the biggest factors for a good FICO score, so meeting your billing deadlines helps make your FICO score better as you start proving that you are a reliable borrower.
You should also read the fine print and ask questions about repayment schedules or if your lender will offer you a better deal if you manage to pay in advance for a bad credit car loan. Do not be afraid to compare your options and always look for lenders and dealerships that will help you through the loaning process.
by: Gabriel Kelly