Some may tell you an auto loan with bad credit is impossible, but the truth is that it’s not only possible, but easier than you think. That said, however, you’ll need to understand both how the auto financing industry works, and how to use that behavior to your advantage when looking for financing.
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Is An Auto Loan With Bad Credit Possible?
First of all, to address a common misconception, not only are auto loans on bad credit possible, they are, in fact, fairly commonplace. It’s mostly a matter of being realistic and setting logical expectations about what you can afford and what you’ll receive.
Begin by sitting down with your budget and working out what you can afford as a monthly payment. A bad credit auto loan can actually boost your credit if it’s paid on time through the life of the loan, so you’ll need to make sure that can happen. A monthly payment shouldn’t eat up your entire remaining budget after necessities; you should have some room for emergency expenses and the like. Make sure that the payment you’ve allotted makes sense by saving that money for a down payment for a few months.
Once that’s done, you’ll need to begin applying for financing. Yes, you will be applying for financing first, and there’s more than a few reasons for that.
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The Best Loan For Your Credit
Let’s start with interest rates. It’s easy to believe, especially if you’ve spent some time trying to secure a credit card or negotiate a better rate on your mortgage, that you’re limited in your choice of lenders, or that they’ll all offer the same terms. Nothing, however, could be further from the truth.
Take, for example, interest rates. It’s true that the prime interest rate is set by the Federal Reserve; however, that rate is just how much interest banks can charge each other when lending money. That tends to set a “floor” on interest rates; the bank will at least charge you what it costs to lend you the money. But beyond that, the interest rate is determined almost entirely by how the lender weighs and considers risk.
In most cases, as we all know, your credit score is a big part of that, but it’s not the only factor lenders will consider. For example, if your bad credit is due to one personal setback, like a medical problem or a house fire, some lenders will take that into consideration. Still others will be more interested in whether you currently hold a job and whether you can pay the amount they’re considering loaning you than they are with your past.
As a result, you’ll need to shop around, applying to multiple lenders, and get a sense of who offers what and at what terms. Ideally, you want to borrow as little as possible at the lowest interest rate and on the shortest term. No matter what, however, it’s important to remember that an auto loan with bad credit is in reach, if you’re willing to do the research.