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Bad Credit Car Loans: How to Get a Car Loan with Bad Credit
December 7, 2020● 4 minute read●
One of the significant factors in the progression of the modern world’s industry and infrastructure was the invention of a credit system. By loaning people money to acquire more assets and resources with the promise of paying back later, our growth accelerated quickly. In today’s world, having bad credit can make you feel stagnant. Not everyone can purchase a car upfront, so several people require a third party to get a car loan. So it can be pretty frustrating when your option of guarantors is limited or even non-existent. But you don’t have to despair because you have a bad credit rating. While it might be a little bit more complicated, getting that car loan you desperately need is not impossible. In this post, we’ll be tackling the necessary steps you need to take to get loan approval for a car.
Understand why your credit score is so low
Before looking for a guarantor that will trust you enough, you must understand exactly how bad your score is. If you’re not up-to-date with the latest developments in your credit score, now is an excellent time to sit down and review your records. This point is an essential first step because your ratings aren’t stagnant, they’re constantly changing, and it’s best to go in prepared. It’s not enough to have only a rough idea of where you’re currently at now.
Take into consideration the multiple things that can damage your credit while doing this analysis. Do you frequently fail to repay your other loans on time? Or are you already defaulting on a loan? Are the right questions to ask yourself. Of course, the significant toll is flat out filing for bankruptcy. Once you’ve carefully weighed all that, try to figure out if you’re in an excellent place to apply for a loan right now or if it’s best to wait a little longer.
Try to improve your credit
A lot goes into maintaining a solid rating. If you’re already spiralling down the rabbit hole, there’s no need to continue. It might sound redundant telling you to improve your credit score when trying to find ways to get a car loan with your bad rating. But it would be best if you explored this means before proceeding. It will make it easier for you to get a loan and reduce the amount of interest you have to pay over time.
One of the things you could do to make your rap sheet look better is to avoid going over your credit card limit if you haven’t already. Try your hardest to pay off all, or at least as many of your outstanding loans as you can, and make your next repayment on time. Don’t fall into the trap of applying for multiple credit applications. It is a major red flag, especially if you get rejected. Now is the right time to start picking up healthy financial habits.
Do your research
As we said earlier, it’s multiple rejected credit applications are a wrong signal to potential lenders. Even those who would ordinarily accept your proposal are bound to be wary when they find out that other people don’t trust you. Find out as much as you can about a lender and their requirements before applying. Some of them only approve loans for borrowers with a spotless record. So don’t waste your time drafting an application only to get rejected. If you’re not 100% sure of any company’s requirements, send an email or call customer care to find more.
You can also look for people who specialize in giving out loans to people that have bad credit. Their interest rates are often higher, but your chances of getting rejected are also much lower since they’re specifically for such high-risk lending. You can also consider finding a friend or relative with better ratings to the front as your guarantor.
Find out what kind of loans are available to you
This point is a lot like the last one. Still, instead of focusing on the requirements of specific guarantors, you’re looking for car loans available to people within your credit score. Some banks and credit unions have special provisions for people with bad loans. Discussing the terms with a financial adviser is a good idea. The rates are likely to be stiffer, so you can look for alternative means like bad credit lenders.
Another option is approaching the car dealer directly and finding out if they offer dealer finance to people with low ratings. Their interest rates are also likely to be higher, but at least you can cut out the third party in the form of banks and other lenders. Plus, you can discuss and agree on customized terms for your situation. Before proceeding with any agreement, you must thoroughly read through the contract and understand the risks of saying yes entirely. The last thing you want is to find yourself in an unpleasant arrangement with no way out.
Gather your documents
Getting a car loan approval with a low rating requires a lot more screening. So it would be best if you prepared everything you might need during your application process. Bank slips, card statements, repayment receipts, and other financial documents are examples of records a lender might request. It’s helpful to have all these on hand and appear more trustworthy, which you need. Gather as much evidence that supports your eligibility claim as it could be extremely beneficial to your case.
Whatever you do, don’t lie. Being dishonest is bad because lenders are thorough at spotting discrepancies in your file, never lying or trying to conceal your financial situation’s full extent. It can discredit you as an eligible borrower, which will negatively impact your chances. Come clean about where you really stand and quickly clear up any misunderstandings in your credit file.
In conclusion, yes, bad credit can make getting a car loan much trickier, but not impossible. Your options might be limited, but you still have options you can explore to secure approval.
Written by Jacaranda Team