Getting an auto loan for people with bad credit isn’t as hard as you might believe. If you current have bad credit, an auto loan for people with bad credit is a secured loan, which makes it a little easier. With a car loan, the lender will hold on to the title to the car until you have paid the loan in full, so they at least can repossess the car if you don’t pay the terms of your loan as agreed. Hopefully, that won’t be the case, and you can use the auto loan to help rebuild a good credit history.
This does not mean that easy credit is available for someone with bad credit. A lender will still want to determine you can pay. They will check to make sure you’re employed, and also that you can pay your current debts and the new loan out of your monthly salary. Expect to demonstrate at least three or four months of employment with your current employer, and some employment history before that. A lender will calculate the percentage of your pay is already going to pay off debt – and as a guideline they will look to see if your debt is under 30% of your monthly paycheck. Every lender has their own, in-house guidelines to follow. Remember that even though a lender has the car as security for an auto loan for people with bad credit, they are not in the car business, and they would rather not repossess your car if at all possible!
If your situation is fairly stable, and you have regular employment, and are able to pay the debt you have now, then even if your credit is less than perfect, you will probably qualify for a car loan. Again, because of the security, you may even qualify if you have foreclosure, bankruptcy, or other serious credit events on your credit report.
When you’re working to rebuild some good credit, getting an auto loan for people with bad credit can be just the ticket. You’ll need a working vehicle to keep your job of course, and if you need a better car, getting a loan can help. You will have to make sure you pay the loan on time each month to use the loan as a way to establish good credit history. But remember, even if you can afford the loan, it’s probably better not to buy a car if you don’t need it, as it adds new debt back to your credit report. If you don’t need a car at all, use the cash you would have put toward a car loan and pay off existing debt instead. Your credit history will be that much better when it is time to buy a car.
But if you really do need a car, and you are stuck with a poor credit history, don’t worry. Several lenders in the marketplace realize that many people with bad credit need cars. They may charge you a higher interest rate on the loan, and perhaps an application fee. You’ll also need money down on the loan. One loan term to watch out for is a prepayment penalty, which means you’ll pay a hefty fee if you pay off the car loan early – which could happen if you need to resell the car. Avoid prepayment penalties whenever possible.
It’s also best to check with your bank and other lenders before turning to the car dealership for a loan. Most car dealers will not offer loans for individuals with bad credit, but the ones who do will likely offer very high rates and fees. Use them as a last resort.
Getting into a new car with an auto loan for people with bad credit is certainly possible. Just use caution when taking on new debt, and make sure you pay if off on time to rebuild your credit score.
