A Car Loan For People With Bad Credit

A Car Loan For People With Bad Credit

Most banks have strict policies about whom they will lend their money to and for what the money will be used. They will not grant you a car loan for a used car that is older than five years. They charge higher interest rates on loans for used cars than on loans for new cars. And very rarely do they grant loans to people who fall under the “subprime” category.

A person who is considered a subprime borrower is one who has a blemished credit history. He may not be paying his bills on time, or he may overextend his credit card. A subprime borrower is usually someone who has a credit score below 620. If your loan application has been rejected on the grounds that you belong to this credit-unworthy group, does this mean that you cannot borrow anymore?

You may still get a car loan if you look for lenders that grant financing to subprime borrowers. Avoid finance companies that advertise “1.9% interest.” Notice the sign (**)? Below the big ads, written in fine print, the ** means for prime borrowers only or for people with excellent credit. Clearly, you do not belong to this worthy group. People with bad credit will have fewer privileges when getting a car loan. The interest rates are decidedly high. You may opt to search for online lenders. But there are measures you can take to improve your circumstances.

The first thing to avoid is to completely rely on the car dealer. He will always get a certain percentage out of car loan transactions. In fact, it is preferable if you can secure a car loan before allowing a car dealer to be within shouting distance of you. When you look for a creditor, don’t accept the first one you encounter. Compare interest rates offered by lenders, but don’t accept the average rates they give. A lender may offer a lower interest rate for a person with a credit score of 800 and a higher interest rate for someone with a score of 600. Ask for specific rates. You may also approach credit unions and banks where you have a current account.

You also have a chance to improve your “category” by checking your credit report and improving your credit score. For example, there might be an error in the information found in your credit report. This error may have been responsible for the black mark on your credit history. You must immediately have this error corrected by informing the credit bureau in writing.

Credit scores can change. If you pay your bills on time and if you always stay within your budget, then your credit score will likely improve. If you have a higher number, you may be able to refinance your car loan at a lower interest rate.

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