When you have bad credit, it can feel like your financial options are extremely limited. It's hard to consolidate your debts or get a credit card, and it’s frustratingly difficult to apply for something like a car loan. After all, few financial institutions are interested in lending big sums to people who have a history of defaulting.
But it’s not impossible to get the funds you need for a car. Here are some top tips to help you improve your chances of securing a loan.
1. Find out what your credit score is
Having a bad credit rating means getting a loan with a lower interest rate is tricky. A score between 620 and 660 is what would be considered “fair” and will attract an average interest rate of around 9-10%. If your score is between 500 and 590 (a “bad” score), you may see average interest rates jump closer to 15-16%*. This is useful information because it means you can have an idea of the kind of rate you’ll be offered should you find yourself with a loan approval.
Different institutes may use varying credit scoring systems to evaluate their interest rates. You will need to discuss this with a particular lender for the most accurate information.
2. Shop around
This should be rather obvious advice when auto-shopping, but it also applies to your lender. While the state of your credit file may be considered a risk by some lenders, others will still be willing to finance you. The trick is to then collate the terms, repayments and interest rates you have been offered and compare them to find the best possible deal. Don’t just speak to banks either – lenders like Zoom Car Loans have specific programs to help those with bad credit get a car loan when they need one.
3. Take a friend
Trying to get a car loan with lousy credit can be an emotionally draining experience, but you don’t have to go through the process alone. Taking a friend or partner with you to your appointments is a great idea because not only can they offer moral support, but they might notice an important detail that you miss. If they’re feeling adventurous, or they are an especially convincing actor, you can also give them a part to play during loan meetings – the dubious wife, the critical husband, the unimpressed sibling. If the lender is interested in your business, this may be the key to securing a better offer.
4. Look at loan terms, not minimum repayments
A common tactic that less reputable lenders will employ is attempting to impress you with the minimum repayment amount. Look at the length of the loan instead – if the only way you can afford to make the repayments on it is to take out a long-term contract then there’s a good chance you can’t afford the vehicle. Instead, find a cheaper vehicle and aim for a shorter-term loan with the largest repayment rate you can afford.
5. Don’t get tricked into accepting unneeded add-ons
If the loan you’re being offered is contingent upon you taking certain extras on the vehicle (such as paint protection, extended warranties, leather seats or even insurance) then you should walk away then and there. These things are to be considered non-essential as they only increase the amount you’ll have to borrow. If you require insurance, you can and should handle that separately from the loan.
These are just 5 tips to bear in mind when thinking about getting a bad credit car loan. True, you’re already at a disadvantage, but don’t be discouraged – bad credit doesn’t mean you won’t ever get a loan or a lower interest rate! The right lender with the right deal will have you back on the road in no time.
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