Bad credit happens. Not everyone has a spotless payment history on their credit cards or other personal loans. Fortunately there are lenders out there that understand this and offer credit terms to “Sub-Prime Car Buyers”. In this article, we will explore what you should know about the process of getting a car loan when your credit isn’t so good.
Your new car may be a “brand new” car. The first thing you will find is that many lenders specializing in poor credit loans often want to sell you a new car -not an older, used one. We know this doesn’t immediately make sense. How can someone sell you a brand new car when you have a spotty credit history? There are a number of reasons. From the lender’s perspective, a new car has more value and therefore offers more collateral that can be reclaimed if the buyer fails to make payments. The lender also has the assurance that a new-car buyer will actually keep up with payments because their money won’t be diverted to any costly repairs that can show up with an older car.
Start prepping early. If you’re someone who has bad credit but wants to buy a car soon, it is best to start planning for it, as you would with any major purchase. You need to start with your credit report to see how it would look to a lender. You can get free credit reports from a number of online companies. http://www.annual credit report.com gives you one free report a year on each of the three major credit reporting agencies: Experian, Equifax and TransUnion.
Get Pre-Approved. If your credit isn’t so great, you will be paying a high interest rate but some lenders may offer better rates than others. This is why it’s important to get pre-approved by more than one lender. To find out which lenders may be willing to finance people with iffy credit, simply search for “bad credit loans” on the internet. You will find many lenders and dealerships in your local area that offer this service. Also, check with your own bank or credit union. They may be more willing to approve you since you already have an established financial relationship with them.
Choose a Dealer. Now for the fun part: choose a dealer and see what cars and rates they have to offer. Generally, this will all be online in the form of “inventory”. Next step is to go visit the dealer. When you go in, be prepared to talk about financing. It would be an advantage to be able to show them some personal documents such as a most recent pay stub, a utility bill and a driver license. These items will establish who you are so the dealer/lender can determine the best interest rate they can offer you.
Welcome to Your New Car. Assuming everything works out, you should be able to drive home in your new car in just a few hours. The best news is that if you keep up with your payments, you will establishing a new credit history that will eventually lose your old “sub-prime” one in the dust bin of history. Congratulations!