In navigating the world of auto finance, it is important to note that interest rates will likely be significantly higher on auto loans for poor credit. People with poor credit are considered ‘sub-prime’ borrowers and therefore must contend with higher interest rates and less favorable terms. Only customers with the best credit scores-typically 700 or above-qualify for the lowest interest rates. The interest rates on auto loans for poor credit will vary, ultimately depending on your credit score and history.
People with poor credit do not typically have the option of negotiating an interest rate, primarily because lenders see sub-prime borrowers as high risk. Although auto loans for poor credit are saddled with high interest rates, there are a few important steps that can be taken to ensure your car loan payments are kept low and within your budget. In keeping your payments reasonable, the high interest auto loan that you are taking out can ultimately help to re-build your credit history, repair your credit score, and allow you to qualify for a low interest rate in the future.
Lower Your Interest Rate on Your Auto Loan
One way to lower your interest rate on a bad credit car loan is to utilize a co-signer. A co-signer with good or excellent credit may help you qualify for a lower interest rate. A large down payment is another way to possibly lower your interest rate. Having a 20% or more as a down payment can often bring down your rate to a more manageable level. For people with poor credit, a co-signer and/or a large down payment are ideal, but if you do not fall into either of these categories, it is even more important to follow the following guidelines when securing an auto loans for poor credit.
The first guideline is to purchase an inexpensive vehicle. Since you know that you will have a high interest rate, you don’t want to add any more of a financial burden to your loan. It is important to buy within your means and stay away from expensive vehicles, specifically new and luxury cars. You should be attempting to purchase an inexpensive vehicle with the intention of paying it off as soon as possible so that you can quickly get out from under the high interest rate.
Research Goes A Long Way
Secondly, research your options. Because of the turbulent economic situation today, many more lenders are willing to work with the sub-prime market. An auto financing company, such as BlueSky Auto Finance can assist you in researching your options. At BlueSky, we facilitate the entire car loan process, which is designed to give you the best possible auto loans for poor credit.
Finally, keep in mind that not only are you purchasing a vehicle, but you are also re-building your credit. Sure, your interest rate is going to be much higher when applying for auto loans for poor credit, but if you can manage to keep your payments low and make all your payments on time, this high interest rate loan can also help to re-build your credit over time. Making timely car payments is a sure fire way to re-establish your credit and prove that you are a responsible buyer.
To find out more information about BlueSky Auto Finance, click here.