Bad Credit Car Financing
Sometimes our credit history is the biggest barrier to getting that dream car. Your credit history is one of the most important things to be considered during car loan applications. Another important factor to be considered is the interest rate on the loan you are getting. Getting a new car with a bad credit history can be very tough, regardless of income and job history.
Any indication of past cases of late payments, high debt, bankruptcy, or repossession would be a bad sign to the lender. The lender may assume the buyer may also be incapable of dealing effectively with a loan if given one and lenders always look to avoid the expensive process of repossessing your vehicle. Also there are many queries about does carmax finance bad credit ? and the answer is yes they do finance.
Bad Credit Car Financing need not stand in the way of having your dream car. You may have to change your shopping strategy and spend a little more though. Below are some steps that need to be followed in order to ensure you successfully get a new car despite your bad credit.
Steps to Car Loan on Bad Credit
- Be sure of what to expect
It is important to note that customers with bad credit will most likely be charged higher interest rates that those with a good credit. This would mean those with bad credit will pay more.
If you really need to car it is advised that you increase your chances by going around more and looking for the best deal possible.
- Check your credit to put your best foot forward
This is a fundamental process and is even recommended by the Consumer Financial Protection Bureau (CFPB). The decision by auto lenders on whether to grant a loan or not is partly based on the credit scores of the applicant. Ensure you check your reports with the credit bureaus to deal with any errors or discrepancies that may stand in the way of your loan.
- Decide what you can afford
Before applying for the loan, make a decision on what you can afford and what the appropriate loan budget plan for you would look like.
READ: Structured Financing – Explained, Investment Banking, Real Estate, Products
Don’t just think about the instalment payment charges, consider the total amount you will be paying for the vehicle which include financing charges. A longer loan may allow for lower instalment payment but also result in a higher overall payment for the vehicle if the interest is accounted for.
The loan in general will be affected if you can reduce your loan by trading in a vehicle or making down payment or both. The lender may ask for down payment if you are looking to buy a car with bad credit. Research and study have also revealed that a larger down payment reduces the chances of incurring any higher payment due to additional charges.
Learn to consider if you would necessarily need some of the add-ons that will come with the loan agreement. Agreeing to them will increase your loan so you might just want to do without them.
- Find a suitable lender
Getting your application for a loan accepted even though you have bad credit may be easier if you find a lender who readily accepts applications from similar cases. Options under this include auto dealerships, banks, credit unions and finance companies.
- Shop around (with a time frame)
Shopping around afford you the opportunity to compare different offers from different dealers. You should however take not to do this with a time frame in mind; 14 to 15 days is the most advisable time frame to work with. This would prevent you from damaging your credit any further. When you apply for loans and a lender check your credit, a credit score is created. Too many applications can lower your credit score.
- Try for preapproval
Asides choosing the right vehicle and right lender, try your best to gain a preapproval. Getting a preapproval for the auto loan will mean you already know the terms of their financing and can focus on getting a good price for their car.
- Getting a co-signer or co-borrower may help
Applying with a co-signer or co-borrower may improve your chances of getting your loan.
READ: Business Financing – Options, Types, Small, Loan Startups
- Negotiate your position
A bad credit does not mean you have to settle for a bad deal. You may be able to save yourself some money by negotiating some terms related to the loan such as the interest rate and annual percentage rate, length of loan, prepayment and other additional fees.
