In general, low credit is defined as a score of less than 629. For a variety of reasons, you may have poor credit, including a history of making late payments to lenders identity theft, and simply not having enough credit history. Your credit score dictates what kind of interest you end up paying on your car loan, and a low score means a higher rate of interest.
Good news is that you are not automatically meant to pay a high rate of interest on your auto loan for five years or longer just because your credit score is not great. This guide will help you figure out how your credit score affects your auto loan and how you can get an auto loan with affordable payments if you have bad credit.
With a low credit score, it can make it difficult to buy a car, regardless of the reason. Car dealerships generally raise interest rates for low-credit buyers, also called subprime buyers, because subprime buyers pose a higher risk than large-credit buyers. Even if you have bad credit, though, it is important to reach out to a reliable broker or lender to see what options are available to repay your auto loan instead of taking a high interest rate immediately. For secure a decent loan, follow these steps:
How Badly Do You Need The Car
Do you buy a car because you don't really have any other mode of transport? Or is your car more of an item of luxury? We recommend that you only buy a bad credit car if you're in an emergency.
Before you start shopping for a car and a car loan, take a closer look at your situation to see if you have another option for six months to a year, such as using your current car, carpooling or using public transportation while you are working on rebuilding your loan.
If you don't have a credit history, a protected loan is one way to build credit, and it can also be used to restore credit. Once you open your protected wallet to secure the money, you make a deposit in the atm, and when you close your account, you get that deposit back. You can also work with a credit repair company to increase your score and eliminate inaccuracies.
If you have to get a car and have bad credit, prepare for a high-interest loan. If you have good credit due to your record of payment (which accounts for 35% of your credit score), continue paying your bills on time. Your credit score will bump up after a few months without paying bills on time.
Check Your Credit Report
Don't take that statement of a dealer that you have bad face value credit. Once every twelve months you are allowed to conduct a free credit report check. See for yourself what your ranking is, what activity has impacted your score, and whether your statement includes any suspicious activity. Take your credit report with you when you meet potential investors so that when you negotiate your borrowing, you will be on the same page.
If you have a good reason for a bad item speak to your lender about your credit history. Depending on the reason for your low credit rating, some borrowers may be willing to work with you.
Shop Around
Do your homework by figuring out the prices paid by specific lenders so you won't get taken advantage of.
Look up a lender's auto loan price sheet to figure out what the latest rates are based on your credit score for new and used cars and to take that data to you when you visit a lender.
Opt For A Shorter Loan Stepper
With a five-year versus a three-year loan, you may have lower monthly payments, but pay attention to the interest rate. Generally speaking, interest rates on short-term loans are smaller, ensuring you'll end up paying less for your vehicle. Plus, you're going to end up with a few extra years you won't have to make car payments so you can focus on paying off other loans to raise your credit score.
Look For Newer Cars Rather Than Older
Common sense may tell you that an older car costs less, but the fact is that older vehicles prefer to pay higher interest rates than newer vehicles. It could be a better option to buy a new car with bad credit. Anyone who wishes to fund a vehicle look first at new cars and then old used cars, as these are the cars that tend to offer the best financing.
Nonetheless, a better deal on an older used car can be found, so check out all the choices before making a decision. You may end up finding an older vehicle that you can afford to buy with money, removing in the first place the need for financing.