It would be a mistake to think getting a car loan with bad credit is a mere formality, but it would be equally unwise to think the task is too difficult to bother with. The Internet has seen a raft of lenders emerge that specialize in catering to bad credit borrowers, so there are options out there.
But there are still factors to consider before submitting an application. The primary one is to compile a strong application that satisfies all of the criteria. Securing loan approval is a lot easier when these are achieved.
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However, putting together an application that is strong enough is the challenge, and this is where some simple advice can prove to be invaluable. Remember, car loans are a key part of what lending institutions do, so they want to approve yours.
1. Know Your Credit Score
Arguably, the most important piece of advice is to know your own credit score, and the details of your credit report. Getting a car loan with bad credit is helped greatly when the chinks in your armor are known. It means the areas where most improvement is needed can be identified.
The score itself, while not a killing blow to any application, is significant. If it is 620 or lower, traditional lenders are quick to turn the applicant down. This is where online lenders are valuable, offering a greater chance of securing loan approval, though interest rates charged by subprime lenders can be quite high.
Study your credit report in detail. These can be sourced from the credit agencies that compile them, and may be bought for a small fee. As with all documents, there can be errors and if a score can be increased, then the terms of a car loan can be improved.
2. Improve Your Score
Even a poor credit history can be improved quickly, and the credit score along with it. All that needs to be done is to tidy up financial matters, clearing any arrears there might be and paying off some of the existing debts. When this is done, the likelihood of getting a car loan with bad credit is much greater.
There are a few steps to take to facilitate this improvement. The most effective is to take out a small consolidation loan to clear some or all of the existing debts. With each debt cleared, the credit score is adjusted upwards. The fact a loan is used is beside the point as each credit transaction is viewed separately.
However, securing loan approval depends on the repayments on the consolidation loan being lower than the combined repayments for the original loans. But, since one interest rate on one loan is cheaper than 5 different rates on 5 different loans, a lower monthly repayment is secured, and a better car loan is attainable.
3. Study Your Options
Finally, understand what kind of loans are available before negotiating with the car dealers. They will want to take full advantage of any financing deal, and know that getting a car loan with bad credit is not always easy.
Dealers will always press for a financing deal to be signed through them. This might seem convenient, but it is known that dealers will add an extra 1% or 2% onto the APR to bump up their profits. Securing loan approval in advance means the negotiating power is in your hands.
If bankruptcy is a feature in your recent credit history, then it is possible to get an after-bankruptcy car loan. Even students are offered special terms through a college student car loan, and depending on the lender, it may even be possible to get a no credit check car loan too.
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