Car Loans and finance with a Bad Credit Score
A bad credit score can wreak havoc in anyone’s life. You can’t find a good job, cell phone companies won’t give you contracts, you have to submit deposits even on utilities, you face difficulty getting approved for a new apartment, the list of poor credit score problems is endless.
When looking for car loans, first thing financial institutions look at is your credit score. With a bad credit score, it can be intimidating to approach any bank for a car loan with the next seemingly best option being subprime car loans.
The good news is that despite your credit needing work, you can find a favourable car loan where you won’t have to break an arm and a leg to finance. Here we look at tips on how you can obtain a car loan with bad credit score.
Do you know your credit score?
Remember you already look bad approaching a financial institution with a bad credit score to your name. The best thing you can do to turn the situation around and convince them to approve your car loan is by at least knowing your credit score.
Have a ready credit report showing the reasons why you got yourself in the bad credit situation in the first place. This way, you can identify factors such as forgetting to make certain payments. You can thereafter make the payments, and correct certain other problems on the report in a bid to hint to the lenders that you are taking steps to correct your wrongs.
Conduct proper and extensive research
Having a bad credit score means that you will be your own advocate before the lenders. For this reason, you should be well prepared to plead your case in anticipation of any questions that you may be asked to address.
Know all the terms and what they mean. For instance, you may be asked about the annual percentage rate-APR. This is financial jargon referring to the loan’s annual interest rate. When planning to buy a used car, knowing the value of this car as per numerous resource centers and automotive websites will significantly help your case.
Have a few options of prospective lenders
Have a list of 3 to 5 various banks and financial institutions you would like to approach for a car loan. This can work to your benefit in a variety of ways. First, you want to have a second and third option in case the first lender you approach is not forthcoming. Financial institutions also prepare for a sit down with you the borrower. Part of their preparation entails running a hard credit check which might show credit bureaus that one is about to acquire more debt. This may trigger your credit score to go further down and consequently, some lenders may avoid doing business with you. Second, you want to know that you were able to pick the lender that offered you the most favorable terms on loan payment. After all, you don’t want to worsen an already dire situation as far as your credit score goes.
Seek to prequalify with credit unions and your bank
You may consider it a long shot for you to get a loan with bad credit. But considering you want a car loan, how about heading over to your credit union and bank? Have them pre-qualify you for a loan. This serves to cultivate a positive relationship, particularly with your bank. As much as banks are there to conduct business and make profits if you have a good relationship with your bank they might be inclined to lend you the money under favorable conditions despite the bad credit. On the other hand, being an account holder and a member of a credit union is a short and uncomplicated process. In addition credit unions unlike banks are non-profit organizations meant to help its members have access to funds despite having bad credit.
Take a close look at the terms
Most people with bad credit are quick to sign the dotted line once they hear the coveted approved’ response from car dealers. However, it is prudent to take a closer look at the terms and see if you are in agreement or whether you can manage. Be sure to inquire and ensure that the written contract before you contains all the terms with no possibility of additional terms showing up after you’ve already signed. Failing to stay vigilant at this stage may have you dealing with higher interest rates, increased monthly payments and a higher down payment on future loans.
Go for favourable terms instead of monthly payments
For someone with good credit score, monthly payments are not an issue. However, if you are trying to repair your credit score you need to be more careful. Do not be so quick to accept a car loan because the monthly payments offered to you are much lower than you anticipated. Instead, try and negotiate more favourable terms.
Go for loans with the lowest APR payable within the shortest number of months. This way, you won’t be forced to squeeze your budget too hard and suffer inconveniences trying to make your monthly payments. Favourable terms are custom made to accommodate your current financial situation by offering you a more workable payment plan.
Stay away from Subprime Lenders
Subprime lenders are the first places people with bad credit score run to when looking for quick car loans. They don’t ask too many questions and the majority of their clients are people with credit score issues. For many, this looks like an uncomplicated alternative to financial institutions that tend to be very strict. But a deeper look into supreme lenders and you’ll be forced to take a second thought.
Subprime car loans have exorbitantly high-interest rates and do nothing to help repair your credit score, if anything, they are likely to dig you deeper into problems. These loans require you to sign your car as collateral which must be forfeited in the event you are unable to make payments on your loan as agreed.
In the long run, you want to do your very best to repair your credit score. Making your loan contributions consistently on your car loan is a great place to start. The aforementioned tips will also help you simultaneously find a good loan and improve your credit score.
If somewhere along the road you aren’t happy with the current terms of your loan the wise step would be to continue making your payments while looking for a refinancing partner with more manageable terms.