A bad credit car loan can be a vicious cycle. It can stop you from getting loans, credit cards, and other types of financing, which can leave you in the cold for things as basic as getting to work, which then results in it being harder to pay bills, which increases your bad credit, and so on. However, it need not be that way. You can, for example, finance a car with poor credit, though you may need to accept a sub-prime loan. Here are a few tips for auto financing with bad credit.
Know Your Credit
First, get a free copy of all three of your credit reports and examine where your credit is bad. You are entitled by law to a free copy of your reports once a year at annualcreditreport.com. Reading over your report and understanding your credit is the first step towards getting out from under that crushing weight.
Understand Your Options
Car loans are easier to get than personal loans. This is because the car itself functions as collateral. If you don’t make payments, the loan company takes the car and sells it to recoup their losses. That means that auto financing with bad credit is very possible. Try for optimal loans; you can always shoot lower later, but if you go for a sub-prime rate at the beginning you could end up with worse terms than you would otherwise.
Shopping around is always a good idea. Some lenders will be more willing to grant favorable terms to blemished credit than others will, and you might find options that you didn’t know were out there. You may want to beware of lenders who advertise their services specifically for bad credit auto loans—you probably won’t get the best terms from them. Start by checking with your local bank or credit union. Even new car dealers might be able to get you a good financing option.
Terms Rather than Payments
Don’t immediately look to monthly payments as the solution. The lowest annual percentage rate (APR) over the shortest period will almost always get you the best options. Consider that if you have a $100 monthly payment, but you’re paying off over eight years, any warranty you had on the car may well expire before you’re done paying it off, and then you could be saddled with repair bills on top of your monthly payment.
Remember, just because you have bad credit doesn’t mean you can’t get a car financed. Because car loans use the vehicle as security, you are more likely to get a car loan than other types of loan, and you may even get decent terms.