Auto Loans for Borrowers with Bad Credit
It is a difficult task to get a regular loan from banks or credit unions to buy a new or used automobile when you have a poor credit score. Even if a lender does offer you a loan, the interest rates charged may be so high that you may not be able to afford the loan. In these circumstances, auto loans for bad credit prove very helpful.
What are Auto Loans for Bad Credit?
Post recession there are many Americans who still haven’t been able to improve credit scores that were affected by their earlier defaulted or delayed payments. Bad credit auto loans are loans that these people can opt for when they need funds to purchase a new or used car.
Generally, this kind of loan is initially given by the automobile dealer. Later, the loan is transferred to a finance company. At times, the loan may be serviced by a payment processor on behalf of the dealer.
Stipulations and Conditions
The lender offering auto loans for bad credit takes a much higher risk than a traditional lender as the borrower has a poor credit history, previously having failed to fulfill some financial commitments. This is why this kind of lender imposes certain stipulations and conditions to qualify for the bad credit auto loan:
Buying a Used Car when You Have Bad Credit
A poor credit score may be an indicator that you have not yet managed to pull yourself completely out of financial trouble. In such circumstances, making a large investment in buying a new car may be quite out of the question for you. It will also be difficult to raise a big enough loan to pay for a brand new car.
Buying a used car instead of a brand new one allows you to fund the purchase with a smaller loan that also puts a much smaller monthly burden on your finances. Before you start shopping for car loans for bad credit to buy your used car, here are some points you should keep in mind.
Age of the Car
Although you are buying a used car, it is best to avoid investing in vehicles that have too many miles on them. An old or used vehicle will need quite a bit of investment in terms of money, effort and time towards maintenance. Buy a used car that was manufactured in the last 4 to 5 years. This ensures that the spares and parts for the car will be easily available if and when you need them.
How to Go About Buying a Car with an Auto Loan
Although buying a car requires a much smaller financial outlay than a home purchase, you may still need to find an auto loan before you can start visiting various car dealers to make the actual purchase. If you have a poor credit score you may find it difficult to get a regular loan at attractive rates.
In this case, you have to shop for lenders offering bad credit auto loans. As your loan will impose a financial burden on you for a good few years, it is important to pay special attention to keeping the price within affordable levels.
Evaluate Your Needs
Before you start shopping for bad credit auto loans, it is necessary for you to gain a clear understanding of your vehicle needs. There are many different aspects to consider in this regard.
Type of Vehicle You Need: Your usage determines the kind and size of car you should buy. In turn, this impacts the price of the vehicle and the amount you need as loan to fund the purchase. For example, a SUV is a great option when you have to drive through rough tracks on a regular basis but if you will be using your vehicle only on the highway, there is no need for you to opt for this high maintenance and fuel inefficient vehicle.
Finding the Right Auto Loan for Your Car Purchase
The first thing to consider when you are looking to buy a new or used car is whether or not you need a loan. You can either pay the price of your car in full or pay in installments by taking an auto loan. If your credit score took a beating during the economic downturn, then you may need to look for lenders who specialize in bad credit auto financing. When it comes to shopping for the right auto loan, there are many aspects to consider:
When you opt for bad credit auto financing, you need to put up a certain percentage of the price as down payment with the rest being paid with your auto loan. The bigger your down payment, the smaller your loan amount needs to be. A smaller loan translates into lower overall costs for you as you will be paying less interest on the smaller amount. For a poor credit borrower shopping for bad credit auto financing, it is very important to keep costs as low as possible.
Evaluate the maximum amount you can put up as down payment before you start shopping for your loan. If you will have to liquidate some investments to pay the deposit, make sure to compare the loss of interest with the interest you will pay on the larger loan that you will take if you make a smaller deposit.
Building Your Credit Score with Auto Loans
If you are looking to buy a new car to replace your old set of wheels, you may need to take out an auto loan. But if you have a poor credit score from the many delayed payments or defaults you unfortunately made during the recession, then bad credit car loans may be your chance to make amends.
Setting the Record Straight
When you take a loan and fail to make timely repayments on it, your lender reports the delay or default to the credit rating agencies. In turn, these agencies ensure that the delay or default is reflected in your credit report to warn future lenders of your previous failure to fulfill commitments. A poor credit score tells future lenders that you are a high risk borrower. This makes them hike their interest rate when they offer you a loan.
If your credit score is low due to similar reasons, you can make a positive difference by ensuring that your new auto loan is paid on time. Timely repayments show that you are now in control of your finances and are capable of meeting financial obligations fully. By improving your credit score through timely repayment of bad credit car loans, you ensure that any future loans you need to take are available at attractive rates.
Pre Approved Auto Loans for Bad Credit Borrowers
People who are looking to buy a new car but have a poor credit score that prevents them from getting a regular loan can benefit greatly from opting for pre-approved auto financing for bad credit. A pre-approval means that your loan is already approved by a lender. Typically, the lender approves a specific sum as a loan when you pre-qualify or opt for pre-approval. This makes the loan shopping and car purchase process much easier.
What is Pre-Approval Based On?
Pre-approval is based on many factors. Your current income and credit history are two of the most important factors that are considered. Other than these, your lender may also ask for an estimate of your total disposable income as this will disclose your repayment capacity. Every lender calculates the total pre-approval amount for a prospective borrower using his own special formula that takes all these factors into account.
The Down Payment
The down payment you are required to make for your pre-approved auto financing for bad credit depends on these factors too. For example, a customer who has very poor credit rating may need to put up a much larger initial deposit than one who has a fair credit score. The larger down payment ensures that the customer is committed to the loan and will not default easily.
Auto Loans for Subprime Borrowers
If you are a subprime borrower looking for a loan to buy a car, you may find that many lenders will not even be willing to consider your loan application for the approval process. However, this does not mean that you have to draw on your savings or liquidate high interest earning investments to fund your car purchase. Poor credit auto loans come to the rescue of borrowers who have damaged credit scores that prevent them from getting affordable regular loans.
Who is a Subprime Borrower?
The term subprime means that the borrower is not the ideal customer from the lender’s perspective. A subprime borrower’s credit score may be poor, the credit report may reveal bankruptcies or repossession or even a history of delayed or defaulted payments.
When it comes to auto loans, the lender is especially concerned with any previous history the prospective borrower has with other similar debts. A record of delayed payments indicates to the lender that he faces high risk in lending his money to the subprime borrower.
Due to this higher risk, regular lenders may either reject loan applications from subprime borrowers or ask for a co-signor for such a loan. If you are a subprime borrower and you cannot get a co-signor, then your best option is to go for poor credit auto loans.
Tips on Finding Bad Credit Auto Loans
There are several bad credit car dealerships as well as many banks and credit unions offering loans to borrowers who have poor credit scores. However, it may be a time consuming affair to physically visit each lender to see what they have to offer. Using the internet to do your loan shopping saves a lot of time and effort, and allows you to easily compare various auto loan offerings.
Sites that Link Borrowers with Dealers
You will find several websites that offer to link you with the perfect dealer for your needs. Typically, the dealers featured on such sites are those operating bad credit car dealerships. These dealers offer you a loan as well as have a selection of vehicles you can choose from. In some cases, the loan may later be transferred to another lending institution.
If you are looking for bad credit loans, all you have to do is enter some basic information that is used by the website to link you to lenders who offer loans that meet your requirements. Once you get a list of lenders, you can read more about their loan products, their reputation and their terms before you decide on one.
How Does Credit Score Impact Bad Credit Auto Loan Costs?
Your car is on its last legs and you know you need a new car right away. Your poor credit score is preventing you from getting loans at an affordable rate of interest. In such circumstances, car loans for people with bad credit can come to your rescue.
Not all regular lenders offer auto loans for poor credit borrowers but there are still quite a few options in the market for you to choose from. There are, however, some points to keep in mind about your credit score before you start looking for a bad credit auto loan lender.
What is Your Credit Score?
Check your credit score before you start shopping for car loans for people with bad credit. The lower your score the more stringent the lender’s terms for the loan may become. The rate of interest rises in inverse proportion to your credit score so that the lower your score, the higher the rate may be that is charged on your loan.
It is best for you to request your credit score from the rating agencies well before you start loan shopping. Remember that while your request does not affect your credit rating, repeated requests for your score from different lenders does.
How to Buy Your Motorcycle when You have Bad Credit
Not everyone needs a car to take care of his (or her) transportation needs. There are many Americans who love the freedom of zipping along busy roads on a far more maneuverable, sleek and powerful motorcycle. Even if you already have a car, a motorcycle is more fuel efficient and also easier to park in narrow spaces.
If your bad credit report is standing in the way of your getting a regular loan to buy your dream bike, then bad credit motorcycle loans are what you need. Here are a few tips on buying your motorcycle with a loan when you have bad credit.
Check Your Credit Report
The first thing to do before you start applying for bad credit motorcycle loans is to check your credit report and ensure that it accurately reflects your financial ability. Some creditors may fail to report your repayment to the rating agencies and this means that your credit report shows an outstanding balance when there is none.
Get all missed payments and errors in your credit report fixed and see if you can pay off some long standing dues to improve your credit score. Even though you are opting for bad credit motorcycle loans, your credit rating still does play a role in determining how expensive the loan is.