Millions of Americans make the purchase of a new or used car every year. Some people are well enough off that they can lay down the entire payment of a car outright. This is rare, however, and most people need to secure some form of financing for their car. This automatically means that you will be paying interest on your loan because no lender will extend credit for free. Acquiring financing for your new or used car can be tricky, particularly if you are looking for a poor credit car loan which could be caused by defaulting on other debts or having recurring late payments. In the eyes of a potential lender, customers with this kind of history are considered a risk. However, if you are looking for a bad credit car loan, there may still be a few options for you.
Various loan companies offer deals with higher interest rates for those with poor credit. This apparent backwards thinking is the lender’s way of ensuring they will still make money from a borrower even if they default on their debt later on. However, if you take the time to search out lenders that are willing to work with your current credit situation, you may be able to obtain a more favorable rate on your loan. By taking out a bad credit car loan and diligently making payments on it, you will be on your way to improving your credit score.
A litter further down the road, if your diligence pays off and you see a significantly improved credit score, you may be eligible for refinancing options that will allow you to secure a far more desirable interest rate. The largest setback of a bad credit car loan is that it often requires a hefty down payment and runs for a longer term than standard loans, meaning you will end up paying much more for the car than it is actually worth. This is why refinancing a year or two after opening the original bad credit auto loan is beneficial to you.
Another way to ensure you are approved for a bad credit car loan is if you have a co-signer help you obtain your financing. The co-signer should have good credit and otherwise qualify for the loan. This is risky for the co-signer, so be sure you do everything within your power to not let them down. Seek out affordable cars so your loan amount can be less, helping you pay it off more quickly and with less interest.