You may not think much about your credit from day to day, but you’ll find yourself concerned with it in a hurry when you try to secure a car loan with bad credit. But how does your credit affect your ability to secure financing, and what can you do to get a car loan on bad credit?
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How Your Credit Is Evaluated
First of all, it’s worth knowing how your credit is evaluated by lenders when you apply for a car loan. When you send in an application, they use that to find your credit score. The credit score, also called FICO, and developed by the private company Fair Isaac, is a three digit number that changes over time to reflect changes in your credit. The higher your credit score, the better of a risk a lender will perceive you to be.
Needless to say, the lower your credit score, the tougher it’s going to be to secure financing for a car. However, it’s worth noting that your credit score isn’t the only criteria lenders use to evaluate how good of a risk you are. If you can show that your credit problems are due more to one major problem, such as suddenly losing your job or dealing with a medical problem and the bills that come with it, you’ll be much better off and more likely to secure financing than someone with a long history of credit mistakes. But even if you’ve made a few mistakes in the past, you can still secure a car loan with bad credit.
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Getting A Car Loan With Poor Credit
So, what are your options? First, before you apply, make a point of collecting your credit report. Legally you can request a copy for free every year, and you should take a look at it to see what the lenders you’re applying to will be evaluating them on.
Secondly, keep in mind that with the economic crash of 2008, many people are still working on restoring their credit. The “subprime” sector of the car loan industry has been growing rapidly, not least because there are so many people in that sector. Also, borrowing for a car is not the same as getting a mortgage or securing a credit card; a car is a tangible asset and you tend to borrow for less money.
Mostly what this reinforces is that you’ll need to shop around to get the best possible bad credit car loan. The biggest mistake many make is assuming that the first lender who approves you will be the only lender that approves you. Instead, you should look for as many as possible. Be strict in your criteria; look for the lowest interest rate you can get, on the shortest term that will fit into your budget.
The key thing to remember is that no matter who you are, or how bad your credit, you can secure the financing you need for your car. You don’t have to let your credit keep you off the road.