So, your credit has taken a hit. Or maybe, like a lot of us, it was never that great, to begin with. Perhaps you are just starting out, and you have little to no credit. That does not mean that you cannot get a car loan. There are options out there for bad credit car finance. However, you must be very careful about how you go about it.
The first step is finding out your credit score. A credit score is basically a numerical value attached to your ability to finance a new car. This is based on your history with paying your bills on time, including past loans. If you have had trouble in the past, or have defaulted on loans, your credit score will negatively reflect that. Conversely, if you have been good about paying off debts, your credit score will show that in a positive light.
These days, it is easier than ever to obtain your credit report. Many places online will offer you a free credit report with no effect on your current credit score. There are often strings attached though, so be careful to read the fine print. Nobody likes reading the terms and definitions of anything, but, in this case, it is absolutely vital to know what you are getting yourself into.
Along with your credit score, finance centers will also look at things like monthly income, length of employment, other bills and expenditures, and more. You will have to have a good understanding of where you are financially in the present, as well as what your past history will indicate.
Next, you need to be smart about what you are shopping for. It is very important not to try to go outside your means. You can’t go looking at a brand new Bugatti with a bad credit score, but that doesn’t mean you have to settle for a lemon, either. There are plenty of perfectly good vehicles out there that are well within your means. At this point, the most important thing is to get some wheels that can get you from point A to point B. If in a few years, you have built your credit up, then you can start looking at other vehicles. It may be a while on that Bugatti, though.
One way to help you figure out what is in your price range is by using an auto finance calculator. You can find these online with a simple search. Additionally, many dealerships offer this tool on their website. The way these work is you enter your monthly expenditures and the calculator gives you an idea of the kind of car loan you can afford. It helps you stay within your budget by letting you know exactly where you stand and what you can afford outside your rent/house payment, utilities, groceries, etc.
When it comes down to actually financing a car, you need to be familiar with a few terms. APR stands for annual percentage rate. This rate is the percentage of interest you will pay to the financier for the loan. This rate is most directly affected by your credit score, as it is an indicator of your faithfulness in paying bills. If your credit score tells the financier that you have had trouble in the past, they are highly likely to charge you with a higher APR, in order to ensure that they get the most out of their loan.
Loan terms are another thing to be familiar with, though they can be significantly less intimidating than APR. Loan terms are the conditions under which you get your loan, particularly the length of the loan. The longer the length of the loan, the lower the monthly payments will be because you have more time to stretch out the payments.
When you go to sit down with the finance people to sift through all of this, they should explain all of this to you. A reputable establishment will make sure you understand all of this before submitting to a credit check and eventually signing on the dotted line. However, some people in the finance world are less scrupulous than others, particularly those in smaller places with less exposure. A large, corporate dealership or established bank will almost certainly take the time to walk you through this. A mom-and-pop dealership or a generic loan business may not do that, as they are less likely to be regulated by the Federal Trade Commission. Not all small businesses are like that, but stereotypes do exist for a reason.
You will most likely not personally know the individual you will be dealing with, so you will most likely not know his or her trustworthiness. Instead of relying on the integrity of a stranger, you would be wise to familiarize yourself with these terms ahead of time.
Another important part of this process is to not jump at the first offer that comes at you. Just because you have bad credit doesn’t mean you don’t deserve the best offer. You deserve to hear offers from other dealerships or lenders just like someone with a perfect credit rating does. This also applies to online outfits, too. There are tons of those out there, such as online.cars, that will work with those with even the worst credit ratings. Also, if you choose to go the online route, applying for financing is incredibly easy. It takes just a matter of minutes to fill out the online forms, and you typically hear back from them immediately. If you go to a bank, it may be days before you hear back from them. You can also do online applications from your home without having to leave your couch. If that isn’t a selling point, we don’t know what is.
Finally, be patient. The first person might tell you no. The second and third might tell you no. But, eventually, someone will tell you yes. It may not be on the exact terms you were hoping for, but someone has finally agreed to give you a chance to prove yourself. This means two things. First, you are getting a car. That can be a real life-changer for some people. It opens up your world around you to explore new job opportunities, new social circles and just the freedom of travel, even if it is just to the grocery store and back.
Improve Your Score
Second, it gives you an opportunity to better your credit score. If you can find a car loan that you can afford, then make the payments on time, you will see a drastic change in your credit rating. It will not happen overnight, but this is part of the process. It will happen eventually. Seeing that number rise, slowly but surely, when you check your credit score, is a good feeling. It feels a lot like the freedom of being able to go where you want behind the wheel of your own car. It is an uplifting feeling that gets better every month that your credit improves.
And, after a while, when your credit is to a place where you feel more comfortable, you can start looking at more expensive vehicles, higher trim levels and other perks that you can afford. Just stay off the Bugatti website for a while.