Is it possible to get your loan approved when you have a poor credit history?
Most financial institutions pay a lot of attention to an individual’s credit history before they can decide whether to issue a loan or not. In case you have a bad credit history, your chances of getting a car loan are very slim.
It is a fact that credit score is one of the major factors that lenders consider when it comes to issues car loans. Most of them use a credit score ranging from 300 to 800. If a borrower has a credit score of 669 or below, he or she to have a fair a poor, or fair credit score.
However, things seem to have changed in the past few years. There are various ways through which people with poor credit history can get their car loans approved without delay. One such way is by repairing your credit score.
Things you should do before applying for a car loan
Step 1: Check your credit score and improve it if possible
One of the first things you should do before applying for a car loan is to check your credit history. Requesting your credit report will help you to understand what type of loan you can take. Besides that, your credit report will inform you whether it is necessary to repair it or not.
In case you don’t need the car immediately, the best thing to do is to work on improving your credit score before you can start the loan application process. Improving your credit score will help you negotiate for lower interest rates as well as better terms.
Below are some of the things you can do to improve your credit score:
• Reduce your debts
• Pay your bills as expected
• Check your credit report(or hire a professional to do it) in order to identify any errors
2. Research on different types of car loan providers
It is important to research different car loan providers if you want to get a better deal. Try to search for lenders who mainly focus on providing loans to people with bad credit history.
Although such lenders offer loans at high-interest rates, they can really help people with poor credit history to purchase a car within a short period of time.
There are various ways through which you can search for lenders who offer car loans to people with bad credit history. One of them is through the internet. However, ensure that you choose lenders who are reputable and accredited to offer loans by your state.
3. Work within your budget
Sticking to what you can afford is very important. Ensure that you have an idea of what you can afford monthly before committing yourself the loan.
You should also do a background check on the average interest rates charged on an average car. This will be helpful when it comes to negotiation and also help you know what type of car you can afford.
4. Ensure you have enough money for the down payment
If you are able to save up enough money for your down payment, then you will increase the chances of getting better interest rates as well as lower monthly installments.
Although you might have a poor credit history, a good amount of down payment will give the lender confidence and trust that you will be able to repay the loan. It is therefore important to save up for your down payment in order to gain more benefits when applying for your car loan.
Options to consider for a car loan when you have a bad credit score
In case you are in urgent need of a car and don’t have enough time to improve your credit score, there are several options you can explore.
Get a cosigner
A cosigner with a good credit score will increase the chances of your car loan getting approved as well as benefit from low-interest rates. Who is a cosigner? A cosigner is almost similar to a guarantor. In other words, he is telling the lender that in case you fail to repay the debt, they are the ones who will be held responsible.
Most lenders are always willing to lend to borrowers who apply for a car loan with a cosigner who has a good credit history. They also offer the loan at a lower interest rate simply because they consider the loan less risky compared to someone without a cosigner.
Look for a second-chance auto loan
Second-chance car loans just like the name are designed for people with bad credit scores. They are meant to give them a second chance despite how poor their credit score reads.
If for example you have been turned down by traditional lenders, the best place to seek help is from second-chance car loan providers. This is because they understand your situation and will choose for you financial options that will guarantee approval for your car loan.
Consider credit unions
It doesn’t matter whether you are already a member of a credit union, the truth is that you can still finance your auto loan through one of them. The good thing with credit unions is the fact that they offer car loans with good terms and reasonable interest rates.
How does a car loan affect one’s credit score?
Your car loan will be listed on your credit report. Most lenders will give back a report with regard to your repayment history to the three know credit bureaus.
A car loan will affect your credit rating either positively or negatively. If you will be able to repay your loan in a good time, then your score will definitely improve. On the other hand, if you delay or fail to repay your loan on time, then your credit score will be affected negatively.