Bad credit doesn’t have to mean that you are forced to take an expensive car loan that drives your monthly budget sky-high. According to the National Automotive Finance Association, now is a great time for people with challenging credit scores to look into more competitive finance possibilities.
Bad is a relative term
In addition, the issue of what is considered subprime or “bad” credit differs from lender to lender and there is a lot more leeway to grant better terms with car loans than some other forms of borrowing.
We have some actionable strategies for consumers looking to get the best possible deal for their auto loan:
STRATEGY 1: Confirm your credit score
One of the biggest mistakes made by consumers searching for subprime auto loan is assuming that they have bad or terrible credit without investigating the true health status of their credit score. Never take someone else’s word for it when it comes to you having bad credit. Check your credit file yourself – you can get three reports for free each year. Next, you should visit the MyFICO site to pay a few dollars for your one-time Equifax, TransUnion and Experian scores. Be aware that two consumers with identical credit scores may not be viewed the same by a car loan lender. For example, even if you do have a score in the 550 range, you might be viewed more favorably than a candidate with no credit history at all but the same score.
STRATEGY 2: Understand that car loans are calculated differently to other forms of credit
There is a logical and conceptual difference between car loans and other forms of financing, making it theoretically easier to snare a great car loan with poor credit compared to a mortgage. Car loans typically involve you borrowing less money over a shorter term, and a car is easier to repossess than a condo or house making a default less of a credit risk to a lender. This means that the same credit score could get you a bad credit mortgage but a regular car loan. Also remember that, as per Strategy 1, it pays off to know your credit score as having good credit but unknowingly applying for a subprime auto loan will give you worse terms and interest that you deserve to have.
STRATEGY 3: Shop around and compare lenders
Not all vehicle financing companies have the same target customer in mind. It pays to shop around and see what different lenders can offer you. PersonalLoansForBadCredit.net has a unique database that connects inquiries to a broad variety of lenders, many of whom will view a less than perfect credit history in a more forgiving and positive light. It is free to submit a quote request and can give you a great snapshot of what is available for you to compare several lenders in one search with no obligation to say yes.
STRATEGY 4: Shop for loan terms instead of monthly repayments
By far the most crucial strategy for locking down the best rate and overall deal for that car loan is to look at the companies offering the cheapest money deal. This is comprised of the lowest APR over the shortest period of time. Be aware – some lenders will try to distract with by focusing you on lower monthly payments over a longer time, but this almost certainly means that you will be paying more interest.
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