You have been eyeing your favorite car for long, but due to the lack of good credit ratings, you are afraid your loan application would be turned down. If you want to make a successful auto purchase, you need to focus on several factors that help you sail through the process of acquiring the loan. It starts with a proper preparation for the application process with a right timing so that you get a right car in good prices and affordable loan payment options.
The reasons your loan application may get rejected include:
- Inadequate or incorrect data
- Incorrect submission of forms
- Unstable employment, or insufficient employment history
- Too many loans
- The low value of secured assets, or
- Not filing credit reports and bank statements
The good news is you don’t have to lose your heart when dealing with bad credit car financing. The fact is what you are considering “bad” may still qualify you for no credit check payday loans, which won’t affect your monthly budget.
Here are some effective steps to secure your auto loan:
1. Know your credit score anyway
It is still crucial for you to know your credit score even if it is bad because it will be easier to understand what you’ll need to get a car loan. It is similar to getting a normal loan; the difference, however, is you’ll require to pay a higher interest rate and make a higher down payment. Interests for bad credit loans typically range from 5% to 25%, and vary according to your credit score, while down payment can vary from 20% to 50%. It is pertinent for you to be informed enough to avoid paying extra for bad credit loans. Also, you need to be extra careful that you can afford the cost of the car plus the dealer’s profit. Furthermore, improving your credit can increase your chances of getting an auto loan. The improvement steps are:
- Pay all your outstanding bills
- Pay down any existing debt to improve your credit utilization ratio
- Dispute incorrect late payment entries
- Open another credit card account
- Increase credit limits
2. Find auto finance services for people with poor credit history
Bad credit history doesn’t necessarily mean you are an untrustworthy person, it also reflects you are going through a rough patch. For this very reason, there are many financial services meant for people with bad credits. Which means your current situation can’t stop you from owning your favorite car. In fact, a lot of smart, experienced lenders know how to take advantage of this opportunity by providing loans and making substantial interest from them. Since these loans come with a higher interest rate, you will likely to end up paying more money over the length of the loan. The main options include auto dealerships, banks, credit unions, and finance companies. You can also get help by checking for these companies online. Their interest rates, turnaround times, loan options, and loan tenures are usually included on their sites.
3. Workout what you can afford
Before putting your application for the loan, you need to get a clear idea of how much you can spend and what you can afford. It includes down payment, interest rate, and monthly installments. The monthly payment is the most worrying factor during the auto financing process. Apart from the monthly installment, you need to estimate the figure that will pay for the vehicle in total. Conversely, a longer loan term can lower the monthly payment but may also result in paying more. If you have chosen a particular without knowing whether it fits in your budget or not, some salespeople can make it look like a necessity. So you need to be wary of this and select among the cars that you can afford.
4. Get a co-signer
An effective way to secure your car loan with bad credit is to find a co-signer who has a good credit score. A creditworthy co-signer or co-borrower will improve your chances of getting loan approval. The best way to look for is in your family and friend circle. So a trustworthy co-signer will provide an additional assurance to the lender because they are obliged to meet any missed payment. Moreover, having a co-signer will ease the concerns of your lender regarding the loan, and you will possibly get a better interest rate as well.
5. Get pre-approval
Getting a pre-approval for an auto loan involves completing a preliminary application with potential lenders who will review your credit and other financial information. They will have a fair idea of how much they are willing to offer you and the interest rate. Pre-approval helps you find the most appropriate interest rate. It also helps you know how much you can spend, which in turn puts you in a position of better bargaining power. Pre-approval allows you to know the terms of your financing, and focus on negotiating a good price for your car.
Bad credit might make you less likely to get your dream car, but it doesn’t mean you have lost your odds of getting an auto loan. There are many options at your disposal with which you can get a good deal regarding acquiring a loan for your car. You need to find financers that put less demanding requirements for granting loans.