Everyone needs to get to work, school and everywhere else that’s hard to reach in a landscape designed for cars. Here are car-buying tips for when you have bad credit. We’ll focus on the practical steps any car shopper can take to minimize their expenses and maximize the chances they’ll be approved for a car loan
Work with Lenders Who Will Not Penalize You
One of the simplest solutions is finding lenders who will not penalize you for your bad credit. You can find auto lenders in cities such as Scarborough offering car loans for any credit. They won’t charge you an insane interest rate or tons of extra fees because you went through bankruptcy a couple of years ago. You may pay a slightly higher interest rate or be required to put down a larger down payment. However, they’ll assess your recent payment history and financial prospects. They won’t punish you for having missed a few payments when you lost your job
Clean Up Your Credit
Lenders will use your credit report to assess your creditworthiness. One way to clean up your credit is to pay all of your bills on time, in full, every month for several months before you go car shopping. Remember that this must include every bill from the utilities to the store credit card you haven’t paid in six months. Every late payment is a ding on your credit report. Every missed payment is a red alert to lenders. Growing credit balances, too, are a warning sign to lenders. If you aren’t able to make your current payments, why should they add to your debt load?
If you have bad credit, you cannot afford to miss a car payment. It will hurt your credit, and it will result in immediately penalties from the lender if they don’t repossess the car. One approach is to carefully determine what you can certainly afford to pay each month even if you have an expensive month. Then you won’t be late on the car payment because you had to pay for new tires. Don’t select a car payment based on ratios they recommend but based on your own budget. If you can show a lender that you’ve done your homework, you improve the odds they’ll approve your loan
Take Steps to Minimize The Lender’s Risk
Your credit score is one factor in determining the interest rate and fees you’ll be charged on a car loan and whether a lender will let you borrow at all. Another factor is the risk the lender is taking. Smaller loans equal lower risk for lenders. This means you should put as much money down on the vehicle as possible. A lower loan to value ratio means less risk for the auto lender. You achieve this through a larger down payment, as well. On the flip side, you create a major risk when you ask to roll over your current car loan balance into the new car loan. You’ll literally pay for this so-called negative equity in loan origination fees and a steep interest rate.
Another way you can reduce the lender’s risk is to choose a shorter loan duration. If you’re paying off the car in three years, the car will almost certainly have equity if they have to repossess it. If the car loan is six to nine years, the car may be worth nothing when you miss a payment, and they’re out a lot of money after they sell it for spare parts. If you have a co-signer or second borrower on the loan, you can get more favorable loan terms, as well. This is because the co-signer acts as a backstop, someone who will pay the payments if you cannot.