If you want something badly enough, such as a bad credit car loan, you can usually get it. That can be a good thing. Then again, it can also be a bad thing. It depends on what you want as well as what you need.
Let’s face it: many of us need a car. With more than 250 million registered passenger vehicles in the U.S., car ownership for people of driving age goes beyond being a mere privilege. It becomes a conveyance of survival for many of us.
Bad Credit Car Loan
Buying a car means taking out a loan unless you’re blessed with thousands of dollars of spare money to pay for a new or used vehicle. Very few people can pay cash for a new car and with used car prices costing a mint, even most late model used cars are financed too. If your credit is good, then you should be able to get a loan. If your credit is bad, don’t fret: there is usually a lender willing to extend to you a bad credit car loan, but for a price. Read on to learn how you can avoid getting ripped off.
1. Check your credit score.
Your credit is bad, but just how bad is it? How do you know for certain? Well, the main thing you’ll want to know is that lenders will be looking at a three-digit number representing your credit score. If that score is low, say at 598 or below, then you’re in sub-prime territory or what is known as a “bad credit” score. You can obtain your credit score through MyFico.com. If your score is below 700, then repairs may be in order. If it is below 600, then you’ll need to pay careful attention to the next several steps as you shop for a bad credit car loan.
2. Obtain your credit reports.
Three credit reporting companies have dossiers on you. Specifically, credit information on who you are, where you work, how much money you owe lenders, whether you make your payments on time or not, and other information. Those credit reports are produced by three credit reporting bureaus: TransUnion, Equifax and Experian. Each company, by law, is required to give you one free copy annually of your credit reports. The FTC mandates this, but you can only obtain your free copies by visiting AnnualCreditReport.com for that information; otherwise you’ll pay for them. Head over to that site, put in your information and obtain your free reports.
3. Review your credit reports.
You’ve done so well following what I’ve said so far, but don’t lose focus now. That’s because you’re going to need to *very carefully* read all three credit reports and look at the information the credit bureaus have on file about you. Guess what? There is a good chance that some of that information is not correct. Guess what again? Incorrect information can lower your credit score. What to look for: wrong addresses, outdated job information, paid off debt that shows balances outstanding, accounts supposedly belonging to you that don’t, and more. You’ll need to contact each bureau individually to point out their mistakes, a move that will trigger an audit on their part. With 30 days to respond, the credit bureau can fix your mistake or contest your findings. If they choose to do neither then that information must be removed from your report automatically.
4. Apply for a car loan.
Wait 60 days after notifying the credit bureaus of possible mistakes or disputes before applying for credit. This will allow your updated information to be processed and should raise your credit score accordingly. Good places to apply for a car loan include your bank or credit union. Fill out your car loan application and give it to a lending officer.
5. Consider alternative financing sources.
If your bank or credit union turns down your car loan because of bad credit or the double-digit interest rate seems too high, then you’ll need to look for alternative places to apply for a car loan. If you make multiple loan applications within a month, it will only count as one inquiry by the credit bureaus. Still, you don’t want to waste your time with too many lenders so seek out companies that specialize in bad credit car loans. We don’t endorse any particular lender, but Drive Time, BlueSky Auto Finance, Federal Auto Loan and Fidelity Auto Loan are among the lenders that provide bad credit car loans and other financing. Choose one, make application, and if approved, make sure you understand the terms of the loan before signing your contract.
Bad credit means a few things: you’ll have a more difficult time obtaining a car loan and the interest rate you’ll be charged will be higher than what someone with good credit receives. You can reduce your monthly payments by putting down a larger down payment. Also, if someone is willing to cosign you loan, you may be able to avoid a high interest rate loan completely. With a co-signer on your loan, that person assumes risk if you default and your car is repossessed.
See Also — How To Obtain a Bad Credit Car Loan