How to Finance a Car With Bad Credit
Do you need a car loan but stuck with debt and bad credit? Don’t lose hope. Getting a car financing is still possible although it will not be easy.
Here are some tips to finance a car with bad credit:
1. Check your credit reports
Before applying for any bad credit car loan, check your credit reports with the credit reporting bureaus. This will provide you with insights on your credit rating and why you were given the score you got.
Fixing Your Credit Score
Do you have outstanding debt or accounts that are past due? Did you make delinquent payments? Are there any credit report errors that could have affected your credit score? These factors can be addressed immediately.
Take action and start fixing them by:
- Paying off existing debts. If you can pay off existing debts, settle them first before applying for a new loan. This will increase your credit score and help get you better rates and terms on loans.
- Settling all delinquent accounts. Keep up with your repayments on existing credit if you can. If this is not possible, talk with your lenders and negotiate for a repayment plan that you can afford to pay.
- Filing a dispute with the credit bureaus. When you dispute any erroneous item on your credit report, the credit bureaus are expected to conduct an investigation then provide a response within 30 days. If the disputed item is really incorrect, it will be removed from your report. If it is correct, it will stay on your credit report without damaging your credit score further.
Knowing your credit score helps you stay away from predatory lenders and dealers who offer misleading deals. These creditors would tell you that your credit score is lower than it actually is in order to offer you a loan with a high interest rate.
2. Shop around for better loan terms
Generally, you can only qualify for a subprime auto loan when you have bad credit. This type of car loan has a higher interest rate and a larger downpayment requirement than consumer loans. However, even subprime auto loans can have different interest rates and loan terms. Before choosing one, shop around and compare the interest rates and terms.
Also, be wary of any loan rate that more than double the average. It will affect both your monthly payments and the price of the car that you can purchase.
Short-Term or Long-Term?
Weigh your odds before deciding on the loan term. If you choose a short-term loan, it would take you around 3 years to complete. However, you would need to pay higher monthly payments and provide a large downpayment. If a long-term loan of around five years is what you prefer, you would pay lower monthly payments but higher interest rates.
3. Offer a large downpayment
Be prepared to put a large downpayment. You might need to save for this for a few months before applying for a car loan.
Having a large down payment will reduce the amount of the loan you need. Putting your money at risk also guarantees lenders that you don’t intend to default on your repayments.
4. Get a Guarantor
Some lenders may offer a better interest rate on your car loan if you can present someone who can vouch for your trustworthiness. This guarantor also takes the responsibility of repaying the loan in the event that you default. If neither you nor the guarantor is able to complete the repayment, both of you will have an impaired credit score and could face legal action.
5. Deal with Credible Lenders
Always go to credible lenders when applying for a bad credit car loan. This will help you get a reasonable loan offer and avoid exorbitant or fluctuating interest rates that could work against you.
Positive Lending Solutions is one of the most trusted lenders in Australia that offers bad credit car finance. The company helps people get car loans even with a less than perfect credit history.
Getting a car loan with bad credit can be challenging, but not impossible. If you get approved for one, work hard to make on-time repayments and complete the loan within its term. This will improve your credit score and your future loan prospects.
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