Getting a car loan with bad credit is a little harder than buying a car with good credit, but it's not impossible. There are several strategies for obtaining financing even if the borrower has experienced financial setbacks that have somewhat affected his or her credit score. For most of these approaches, a higher interest rate must be agreed upon. The good news, however, is that bad credit auto loans are often helpful in rebuilding credit ratings and make it possible to obtain auto loans with a more competitive interest rate going forward.
Before attempting to secure an auto loan with bad credit, it is a good idea to obtain copies of current credit reports. In this way, you can see exactly what potential lenders see when they retrieve copies of one or more of these reports. If information is outdated or incorrect, steps can be taken to update the information, which in turn can improve credit scores. Having a slightly higher credit score improves your chances of being approved for an auto loan, and the potential to earn a better interest rate is also increased.
Once credit reports are checked and verified, turn your attention to car dealers that specialize in providing auto loans to consumers who do not have impeccable credit scores. In some cases, these retailers have their own financing option that allows consumers to make a down payment and then pay installments on the balance over a period of time. Unlike bank auto loans, this type of auto loan is typically designed for weekly or bi-weekly payments, depending on how often the consumer receives a paycheck from work. Qualifications for this type of bad credit auto loan usually focus on earning a minimum income per calendar month and being at work for at least a certain amount of time. Some lenders of this type offer the benefit of automated disbursement from a checking account to manage the payment process.
While in-house financing is one way to get a car loan with bad credit, keep in mind that interest rates on this type of loan can be substantial. Trying to qualify for a car loan through a bank may be a better option. While high-risk car loans through banks also come with a higher interest rate, the terms are generally easier to manage than the owner-financing offered by used car dealers, since a monthly payment is usually required. Applying this interest rate is also likely to be less expensive, saving the consumer money over the life of the loan.
Don't assume that just because your credit isn't perfect, it's impossible to get a car loan with bad credit. There are options available to help anyone who has a steady job and earns at least a minimum amount each month. Make sure you understand the terms in the loan agreement and the commitment you are making before signing the loan agreement. As long as payments are made on time, you can enjoy the benefits of reliable transportation while improving your credit score.