Getting a Car Loan with Bad Credit
A new group of borrowers
The recession was difficult for everyone. In particular, it created a new group of borrowers who have tarnished credit. Despite bad credit, many people still need to buy cars. Many believe that if they have bad credit buying a car is impossible, but that’s not true. Especially today, when car dealerships are willing to work with all credit levels to increase sales, it’s possible to find reasonably priced vehicles with reasonable financing terms. Here are some tips on how to find a lender if you have imperfect credit.
Don’t be desperate
Consumers are warned to not act desperately just because their credit scores are low. Don’t feel that you need to grab the first financing offered to you no matter how unfavorable the terms may be. There are still good deals out there to be had and now is a good time to start searching for a car loan. In a Bankrate.com article, Jack Tracey, executive director of the National Automotive Finance Association, confirmed that lenders are relaxing their lending guidelines in the post-recession economy. Tracey said, “It’s become easier than it was late last year. The economy is improving, and some of the financing sources are coming back into the market.”
Strategies for finding a car lender
Here are some helpful hints for finding a good car loan when you have bad credit:
Remember that all lenders are not the same. Some lenders will look at bad credit in a more positive light than others. That’s why it’s important to shop around. A person may only qualify for an 18% interest rate with one lender, but another may offer 15%. That difference in interest rates can mean thousands in savings over the lifetime of a loan.
Check with the financial institutions first. It’s best for a consumer to start the search for a car loan at their bank or credit union first. Applying at a current financial institution can greatly increase chances of approval at a decent interest rate.
Don’t go to bad-credit lenders first. There are many lenders who cater to bad-credit borrowers. Though they may sound good, a lot prey on customers who think they are at the end of their financial ropes. They’ll promise loans, but with exorbitant interest rates. These lenders know that their borrowers are desperate, but no matter what kind of credit scores they have, borrowers should take a little time to search out better deals.
Look for the lowest APR rather the lowest monthly payment. Lower monthly payments don’t always mean you’re getting the best loan. Many lenders offer low payments, but frequently the low payments are the result of an extremely long loan term. If you need more than 36 to 48 months to pay off a car, chances are very good that you’re buying a car you cannot afford.
Be wary of variable interest rates. If you finance through a dealership, you may be offered a loan with an interest rate that varies over time. Sometimes these are referred to as “yo-yo sales” and they are a bad idea for any buyer. These loans allow the dealership to elevate interest rates days or weeks after the deal is signed. Many borrowers with bad credit are offered variable-interest car loans. They should be avoided whenever possible.
Be cautious in a recovering market
Buying a car with bad credit is possible and it isn’t necessary for anyone to grasp at the first offer. Even in today’s depressed market, there are numerous options when it comes to auto financing. It may take some time and effort, but once you find a reasonable interest rate, a reasonable monthly payment and a great car, it will all be worth it.