Car loans are a real possibility for people with bad credit and
often a huge step in rebuilding one's credit score. Before you
apply for vehicle financing, check your credit report and shop
with several lenders. Also, remember that you can refinance for
better rates once your credit score has improved.
Polish Your Credit Score
Credit scores are one of the chief factors to qualify for
financing. While foreclosures and bankruptcies take a couple of
years to fully recover from, you can immediately improve your
score.
Begin by looking at your credit report for errors. Resolve
issues with your creditors and include a note of explanation in
your credit record. Also, spread out any credit card debt so
that no more than 30% of a credit line is used. Increasing your
cash reserves can also raise your score.
Shop Lenders Before Car Dealerships
The best way to find a good car loan is to shop rates of several
different financing companies. The best time to do this is
before you find a car.
If your score is in the 600's or higher, then start looking at
conventional lenders. For lower scores, research subprime
lenders who specialize in financing high-risk groups. Don't
completely cross off conventional lenders though; they can also
offer deals for people with adverse credit. The key is to check
out a number of companies before applying with one.
Improve Your Rates
Even with poor credit you can improve your rates. A down payment
of 20% or more can qualify you for a rate drop. A shorter term
will also reduce your rate and save on interest costs.
Purchasing from a dealership can also qualify you for a point or
more in interest reductions.
Refinancing Is Always An Option
Once you have found financing, remember that you can refinance
when your credit score has improved. Refinanced car loan rates
are slightly higher than conventional loan rates. You may also
find using a home equity loan can provide you with even better
rates and terms.
The time you invest in researching lenders and financing offers
will save you money and protect you from unscrupulous lenders.
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