Conventional wisdom says you can’t get a car loan if you have bad credit rating. But finance experts refute this mistaken belief and offer tips on how to obtain approval for an auto loan even if you have a dismally low credit score.
You may be a bit skeptical about getting a loan for a brand new car. Yet some lenders are willing to take on risky borrowers and offer them new cars rather than used ones at lower prices in “buy here, pay here” lots. Why? Used cars have a bigger chance of breaking down and needing costly repairs. These repairs ruin the borrower’s budget leading to defaults in loan payment. Brand new cars won’t have as much break down problems. Another reason for lenders preferring new cars to used ones for their clients is the value of the car as collateral in case of repossession.
Contrary to what some people may think, a hit and run attorney says car accidents do not affect a credit score unless you are convicted, ordered to pay the other party and you fail to do so. Then your debt will be sent to a collection agency and will be reported to the credit bureaus.
If you have a bad credit rating and you want to apply for a car loan, here are actions to take to improve your chances of being approved.
First of all, check your credit score by asking for a credit report. There may be an error that affects your credit score, which in turn increases the interest rates of any loan you might get. Errors on credit reports are more common than you think and the credit bureaus give guides on reporting them for correction. Asking for a credit report also allows you to check the veracity and accuracy of the information in them and to guard against identity theft. Bring your report to the lender so you can explain the circumstances regarding a negative item. Some lenders are willing to listen and work around it if your reason seems valid.
Don’t limit yourself to one lender. Check out several and compare interest rates so you get the best deals. Subprime borrowers are usually given double or more the average interest rates for people with good credit. So for people like you who don’t have exemplary credit ratings, it pays to shop around for the lowest rates since these things vary from one lender to another.
Search for loans within a two-week period. When you apply for a loan, it’s customary for lenders to check your credit rating. For whatever reason, a check has a negative effect on your score, so that it gets lower every time an inquiry is made. But since these inquiries are counted only every two weeks, all checks within that timeframe count as one. That’s why you should only apply if you are certain to take out one; otherwise, all those checks by lenders will worsen an already bad credit score.
Get someone to cosign your loan. This is a tricky situation for the cosigner if you fail to make good on your loan payments. A cosigner has the same legal responsibilities for paying the loan as you, the borrower. But a cosigner with a good credit score can get you approved for a car loan at the prevailing interest rates instead of the exorbitant ones imposed on borrowers with bad credit. Make sure you are diligent in the payments or you might not only lose the car to repossession, you’ll also lose a friend, sibling, parent or whoever the cosigner is.