You’ve found yourself in a situation where you need a new car for one reason or another, but you’ve run into a dead end – bad credit. Now, you’re left wondering what to do next. Is it even possible to find a car loan with poor credit? What are your options?
The good news is that car loans for bad credit do exist. However, they typically come with high interest rates. Increasing your chances of being approved for a loan with more favorable interests rates involves building your credit, which takes time. If you need a car now, the following tips can help you better understand bad credit car loans and find an option that fits your needs and budget.
Why Are Interest Rates Higher On Bad Credit Card Loans?
First of all, why are interest rates so much higher on bad credit car loans? When you have bad credit, it has a significant impact on the interest rate associated with the loan. This places the lender you are trying to work with at greater risk. To mitigate the risk, most lenders will choose a higher interest rate for low credit applicants, which then has a substantial impact on your monthly contractual payment.
The size of your initial deposit has a big impact on your monthly repayments. If you can raise your initial deposit, you may be able to make the option more affordable by securing cheaper overall monthly repayments. The final reason behind high interest rates comes down to the lender you are borrowing from. Each lender has their own processes and requirements.
How to Get Financed for A Car with Bad Credit
By following a few simple steps, you can greatly improve your chances of getting approved for a car loan:
- Save for down payment. There are many benefits to saving for a down payment. A down payment can help you qualify for an auto loan more easily. It also means less risk for the lender, plus it means paying less interest for you.
- Be realistic about your budget. So many people jump in before they figure out how much they can really afford to borrow; this includes fuel, regular maintenance, auto insurance and any parking expenses or property taxes. Determine exactly how much you can afford before you seek out a car loan.
- Compare your lending options. Shopping around before committing is really important. It can help you make sure you are choosing the best loan for your unique needs and budget. Beyond traditional lenders, make sure you also consider online lenders, car dealerships, current bank, etc.
All in all, taking the right steps can help increase your chances of getting a car when you need one most, without adding an overwhelming financial burden. Yes, bad credit car loans can be expensive, but that doesn’t mean you can’t find one that is affordable and right for you.
Author Bio: Michael Hollis is a Detroit native who has helped hundreds of business owners with their firstamericanmerchant.com solutions. He’s experimented with various occupations: computer programming, dog-training, accounting… But his favorite is the one he’s now doing — providing business funding for hard-working business owners across the country.