A bad credit score can be very frustrating because getting a loan from lenders at an affordable rate can be very challenging because subprime lenders charge higher interest rates when issuing you a loan. In addition, you won’t have many offers available for you to choose the best one.
Fortunately, you’ll be glad to know you can still qualify for a bad credit loan to pay for the emergency expense. Without further ado, here are five tips you should know on how you can qualify for a Bad Credit Car Loan. Let’s get started.
1. Consider Improving Your Credit Score Before Applying For A Loan
You must first closely examine your credit score and report before applying for a bad credit loan. Doing this will give you clear insights into your current credit standing. Knowing this will help you understand what measures you need to take to improve your current credit score. You’ll also be able to pinpoint any inaccuracies in your credit score that might negatively affect your current credit rating.
According to Bad Credit Statistics, 16% of consumers in the United States have a “very poor” credit score, and 18% have a “fair” credit score. This means that they have a FICO score of 579 or lower. If you fall into this category, you may have difficulty getting approved for a loan, even a bad credit loan.
Once you know your credit score, there are certain things you can do to improve it, and these include;
- Clearing off your outstanding debt
- Removing any mistakes from your credit report
- Opt for a secured credit card to boost your credit score
- Make timely payments
All these techniques will help improve your credit score slightly. As a result, you’ll be more likely to qualify for a bad credit loan at lower interest rates and a greater amount.
You should also avoid certain bad credit items a couple of months before requesting a bad credit loan, and these include;
- Charging high credit card balances
- Opening new credit cards
- Debt collections
- Bankruptcy
- Lawsuits judgments
- Charge-offs
This is vital because lenders see these as a red flag, and they’ll most likely decline to offer you a bad credit loan.
2. Compare Bad Credit Loans
Although you have a bad credit score, this doesn’t mean you should settle for the worse credit rates and terms on the market. This is an assumption many people with a bad credit score often assume, but it isn’t always true. Therefore, you must compare different bad credit loans offered by different lenders to pinpoint one with more favorable terms.
Lenders usually charge you different interest rates after issuing you a bad credit loan because they follow different approaches when computing your creditworthiness. This is why you mustn’t assume the worst and instead take time to find a lender that offers a bad credit loan at an acceptable interest rate.
3. Consider Secured Loans
Another way you can qualify for a bad credit loan is by using an asset such as your car or home as collateral. Doing this significantly increases the chances of qualifying for a bad credit loan because lenders will use your asset to settle your loan in the event you default on paying. Having collateral will also improve the interest rates that the lender charges you.
Therefore, it’s best to use collateral if it’s available when you don’t boast an excellent credit standing.
4. Find A Cosigner
You should consider looking for a cosigner on your Bad Credit Car Loans to boost the lender’s chances of your request being accepted. The cosigner is an individual who boasts an excellent credit score. And if they co-sign your bad credit loan, there’s a higher chance of the lender granting you the loan because it’s easier to believe the co-signer due to their creditworthiness. And if you default on payment, they’re legally liable for settling the outstanding loan.
With this in mind, you should look for a cosigner, whether it’s a friend or family member, to guarantee your bad credit loan. Remember that taking out a bad credit loan with a cosigner might ruin your personal relationship with them if you default on settling the debt. Therefore, you two must first understand what you’re signing up for before going ahead with this arrangement.
5. Collect All Your Personal Information
Lenders usually look at different information to determine whether to issue you a loan. Therefore, you need to gather all these details when applying for a bad loan which the financial institution will use to gauge your creditworthiness. These details include;
- Your social security number
- Your employer’s name
- Annual income
- Outstanding debts
- Average household expenses
- Driver’s license number
- Whether you own or rent your home
- Your recent pay stubs
- Your two latest bank statements for each of your bank accounts
- W-2 forms for the previous two years
- Your federal taxes for the previous two years
Your lender can also ask for other documents, and you should be ready to deliver these to them upon request quickly.
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