There are times when we want to make a large purchase, like getting a new car, but we don’t have the financial means. There are many types of loans available and auto loans is one of them. However, these loans are only granted to those who have good credit scores. What if you have bad credit, will you be able to take out an auto loan? It may seem nearly impossible, but experts believe with a few tips, it can be done.
What are credit scores?
A credit score is a rating or number that shows lenders like banks or credit card companies if you’ll be able to pay back the loan. With a simple calculation based on your credit file, your final credit score will determine if you can take out loans. A high score ranges between 800-1000, a medium score ranges from 700-880, while a low score is anything below 700. Obviously, the higher your score is, the better chance you’ll get loans with low interest rates.
What if I have bad credit?
Before taking out a loan, you need to check your overall credit score. If you fall into the poor credit score, then unfortunately you need to be prepared for either getting rejected or getting a loan, but paying a high interest rate that can go up to a whopping 30%; you’ll end up paying thousands more than what you’ve bargained for. However, getting a car loan doesn’t mean it’s an impossible task. There are a few things you can do to avoid rejection.
Option 1: Don’t take no for an answer
Before you apply for loans, do some ‘shopping’ first. Research the many lenders available in your area, and be sure to visit several ones. Lenders are different, this company might approve your loan even if you have bad credit, while others won’t. Don’t limit yourself to one lender only; expand your approval probability by visiting more than one because some actually help those with bad credit. You need to also be prepared beforehand by expecting exactly what they will look for in your credit.
Option 2: Raise your credit score
A smarter way to purchase the car you want with a low interest loan is by improving your credit score. Be sure to pay your bills on time so they won’t be overdue; payment history is one of the things that can bring down your credit score. Try to reduce your debts and overdue purchase payments as much as you can because it can help your score greatly. You can also review your report for any errors that might have brought your score down. Be on your best behavior financially in the months leading up to the loan and try not to commit yourself to anything that will raise red flags with the lenders.
Option 3: Other alternatives
If the above options seem like a long process to you and you’re in a rush to get that car immediately, then consider these alternatives to enhance your chances of getting a loan. Save up on the down payment because if you do, it actually helps lower your loan’s interest rate and monthly fees. Consider having a co-signer with you who has great credit. A co-signer is basically telling your lender that if you can’t pay, they will. Their high credit score can bring you a loan with extremely low interest rates. You can also get a pre-approved loan from credit unions because they’re non-profit organizations. Car dealerships offer payment deals as well to help those with bad credit.
There’s still a chance
Getting an auto loan with bad credit is quite a challenge, although a doable one. You just have to be patient, research all your options, improve your credit scores, and consider saving from your own money as much as you can. Get back on track financially, and with a little bit of time, you’ll get the car you need.