For many people on the American continent, public transit is more of a luxury than a viable option. If your only means of transportation to work and back home is a personal automobile, now it’s the time to regret that less-than-perfect credit score. It’s almost impossible to secure car loans for people with bad credit. Understandably or not, there are trust issues to make amends for and high rates you want to avoid at the same time.
Bad credit history may not be what you are, but it’s your business card when you’re dealing with banks. Maybe you scored low on your credit due to poor spending habits, youth inexperience, job loss, poor financial advice, accidents or illness. Unfortunately, no matter how it happened, you can’t shake off those bad grades that easily. A similar scenario would be applying for university after you’ve spent your high school years rebelling against the homework and grading system and compromising your future.
Once you gain a ‘heavy spender, slow payer’ reputation, it takes more than commitment and time on your side to build your score back. You slipped once, you may do it again. At least, that’s the reasoning behind the larger monthly payments that auto dealers will impose on you just because of your poor credit history.
The road ahead can be long and exhausting, but there are several short routes we could point you at on the credit recovery map. So start your curiosity engine. Below you’re going to take a journey through the top financing options to improve your chances of getting the car loan you seek.
Car Loans for People with Bad Credit – Does It Really Have to Be a Lone Road Ahead?
First, you need to boost your credit and optimize your overall standing. We’ve already outlined the necessary steps to rebuilding your financial rep in one of our previous posts. How else can you improve your position so no lender or bank will deny you a decent car loan?
The ‘Buy Here, Pay Here’ Dealership – A Second-Hand Car for a Second-Chance Loan
Typically, this type of dealership allows car loans for people with bad credit. So you’ll feel right at home once you cross the threshold of a ‘Buy Here, Pay Here’ establishment.
BHPH dealerships know everything about money crisis. After all, they were practically born from the stuff of national financial hardships and default economies. In the 1970s, automobile dealers decided they would sell their used cars to poor customers no bank would guarantee for. In a bold move, they transitioned into the world of banking by opening lender offices right across the street from the dealerships. These became known as related finance companies, or RFCs and their mission became to approve a car loan for people with bad credit.
Now, you can seek out a BHPH dealership that will sell you a used car with little to no money down while also displaying a high tolerance for bad credit. A helping hand of this kind might get your credit gears in motion, but you should also be prepared for the cons.
Pros Versus Cons with a BHPH Dealership
First, dealing with a BHPH might prove to be a speedy way to get through the hassle of purchasing a car. In many cases, the auto dealership can even approve you over the phone after they verify your social security number. However, in case you want to settle the score with your bank and make good on future payments, know that not all auto dealerships will let the credit bureau know about your credit progress.
Secondly, you’re going to be the proud owner of a car that has accumulated many scars during its service life. It may require repairs you can’t afford and be more of a bitter ‘lemon’ than you thought.
Last but not least, expect some high-interest rates on your BHPH loan. However, if you’re into driving ancients with mileage the length of the Earth’s circumference– that, by the way, no other auto dealer would foot the bill for- then you’re the ideal ‘Buy here, Pay here’ client.
Seek Out a Loan Through a Credit Union
You might be unable to meet credit standards almost everywhere, but know that the credit union doesn’t judge. At least, not as harshly as other banks or auto lenders. Unless you’re facing bankruptcy, you might just meet the requirements to get your much-craved car loan.
Credit union car loans for people with bad credit typically come packaged with low rates and fees. It generally means a lower cost of borrowing. In particular, that translates to ‘No Mercedes-Benz X-Class!’
In terms of receiving less rigid eligibility requirements and the lowest auto financing rates on the market, join a credit union. Conventional wisdom credits this type of interest to be 1 to 1.5 percent lower than banks.
Consult with one their representatives on the problematic credit score. Then, you can choose an auto dealership and let them deal directly with the credit union.
Do Your Homework On Car Loan Rates – Don’t Worry! This Time Google Is Not Plagiarism
This is the first lesson to learn when you’re trying to wrangle a good deal on car loans for people with bad credit. Always do your homework in advance. In this day and age, there’s no need to spend hours in the library. Sifting through the heavy tomes of history to get your research done is so yesteryear. Some basic Googling will do the trick now.
Once you gain some authority on the most common loan rates, you’ll find yourself happily keeping your footing when dealing with the lender. Know that rates vary by geographical coordinates, so narrow your inquiries by zip code.
Crucial Tip! Limit your loan to a two-week period. The last thing you want is to worsen your credit score, which is the very thing that happens every time you apply for a car loan. Yet, if you limit your applications within a two-week timeline, they will count as one inquiry.
Also, don’t extend your loan for more months than you need to repay it. While lenders will try and persuade you to drag the loan for many months to come, know that interest has this nagging tendency to add up over time.
Improve Your Credit-bility by Getting Yourself a Cosigner
If your credit score is beyond reparation – although, in our experience, nothing is an absolute in the world of finance – ask a family member or a friend to back you up. This entails having someone with a good credit score to co-sign the deed with you.
The logic? First of all, maybe their commendable financial behavior will also rub on you a little. Secondly, any lender- be it credit unions, auto dealerships, or banks- will drop their hefty interest rates down a bit. You’ll be given entrance to the category of car loans for people with bad credit but good company.
End of the Loan Road – A New Start On Rebuilding Credit
Everyone deserves a fresh start. You might have experienced the slow, winding road of car loans for people with bad credit. Yet, now you’re gaining speed in rebuilding your credit scores. Remember the tips above when you begin the loan application process with your BHPH, credit union, or an online lender.