Why Bad Credit Doesn’t Really Matter for Auto Loans
A bad credit rating can stop you from being able to borrow money. However, there are certain types of loans, including some auto loans which are available to those with a bad credit rating. There are some features of auto loans that can make them more likely to be given and there are things you can do to increase your chance of getting one.
As auto loans tend to have a shorter term, than other loans such as mortgages, then lenders tend to be less strict with regards to whom they are prepared to lend money to. It may be possible to get a loan with a good interest as well, although those with a worse credit rating may find that their interest amount may be higher because they are a higher risk.
It is also in your advantage to have a lower term loan because you will pay it back more quickly and therefore it will cost you less overall. You may be tempted to go for something with lower payments over a longer term but if you can afford to make the higher payments then it will be cheaper.
If you can make a significant down payment on a car loan then you are more likely to be able to secure one. With a chunk of money paid off it shows the lender that you are capable of saving up some money. This makes you seem as less of a lending risk. It also means that there is more equity in the car which is attractive to the lender.
With a car loan, you have the car as equity. What that means is that if you cannot keep up the payments on the loan, then the car can be repossessed. This is not nice for the borrower of course, but it means the lender has some security. Hopefully this will not only mean there is a better chance of a loan being approved but will also help to keep the price down.
Sometimes an auto loan will have a lot of add-ons. They will try to sell you warranties, insurance, servicing and things like that. They can make a lot of money from these and they may be prepared to give you a loan if you sign up to these. Be careful though, you could end up paying a lot more money than you originally intended to.
Getting a Co-Signer
It is possible to have someone else sign your loan agreement with you. They will guarantee that if you cannot make the repayments then they will do it for you. They will need to have a good credit record and this will help you to be a better lending prospect.
Due to the security that a car loan has, it means that you could be offered a loan more easily than for other things. However, it is important to shop around. Remember that it is not just a car dealer that can give a loan for a car. Credit unions and banks will offer car loans and these can be cheaper, so it is worth doing some comparisons and applying to the cheaper ones first.