Given that recent estimates have been that about nearly one out of every three Americans who have a file with at least one of the major credit reporting are afflicted with bad credit and many other people have no credit at all, it is often easier to find a lender for a car loan when you have bad credit than you might think. However, it is important to note that you may be able to increase the likelihood of getting a loan with affordable payments and a reasonable interest rate by making specific choices when choosing a vehicle and lender. Therefore, the following information will be quite useful.
Understand Why And How Bad Credit Can Increase The Payment (But Not The Value) Of Your New Car
When you are setting the budget for your payments, it is best to remember that the interest rate you are given on any loan will usually correlate to your credit score and the lender's perception of how likely it is that you will default on your loan or make your payments late. As a result, your friend with an amazing credit score might be offered a car loan with a 2% interest rate and you might only be approved for that same purchase with a much higher rate of interest.
Higher interest rates will result in higher payments, which ironically can make it harder to pay other bills on time and in full, thus making your credit score even worse in the future. Unfortunately, the higher interest rate and the higher payment does not add to the value of the car. That means that it is essential to minimize the balance of your loan and the interest rate it carries whenever possible, as those costs add up significantly over the years.
Earning A Reduced Interest Rate
Fortunately, you may find that when you make yourself a less risky candidate for a loan, the interest rate may decrease. While increasing your credit score usually takes a while, it is often possible to negotiate a lower interest rate if you are able to shorten the length of the loan. For instance, instead of taking five or six years to pay a brand- new car off, it may behoove you to buy a less expensive or used car that can be paid off within three or four years.
Alternatively, if you have had an existing relationship with your bank or credit union for some time and your account has usually been in good standing with them, they might be more willing to work with you on negotiating more attractive loan terms. The same is also true if you have recently paid off any loans with another lender, as that company may be able to overlook previous credit issues in order to maintain or win back a good customer.
In conclusion, there are many reputable lenders who can prevent car loans to individuals with bad credit. As a result, if you know that your own credit score is less than ideal, it is a good idea to be aware of the advice shared above as you are preparing for your new car purchase.