Guide To Buying A Car When You Have Bad Credit
The auto lending industry relies on the buyers’ credit scores and other factors to award car loans to borrowers. As such, buyers with high credit scores (670-739) obtain low interest loans while those with low credit scores are regarded as high-risk borrowers hence, the high interest rates charged on their auto loans. It should not deter borrowers with poor credit scores to apply for car loans. They only need to understand the impact of their current credit scores, follow proper credit repair plans and determine how much they can afford to spend on new vehicles. This guide shows how borrowers with bad credit can acquire new cars.
Determine How Bad Your Credit Is
There exist different channels for evaluating a credit score. You can obtain an annual report from the credit bureau, view credit card online portals or visit credit reporting companies. The reports help you understand why you have that score and identify errors and suitable credit repair methods. There are two ways of getting lousy credit on track- making timely payments and catching up on credit limits on your accounts. The credit score reflects the amount of credit you are using and credit extended by the company. You also want to be cautious when closing some accounts as this decision may have a negative impact on your credit score. For example, if you have a credit card balance is £5,000, and the credit limit on all your cards is £25,000, the utilisation rate is 20%. If you closed a card whose limit is £8,000 your credit utilisation rate increases to 41.67%, which has a negative impact on your credit score.
Opt for a Certified Pre-owned Vehicle
When you have poor credit, it is essential to find a vehicle that matches your financial status. Dealers are eager to sell new cars. Subsidised car loans accompany such deals but you not get carried away. Your ultimate goal is to obtain an auto loan that improves your credit score. As such, you should consider the total cost of the loan and that of buying the car, including maintenance and insurance costs. A certified pre-owned vehicle from a reliable dealer comes in handy because you make significant savings and take advantage of other bonuses that come with such packages. Remember to assess the car for efficiency, reliability, cost of insurance and safety.
Arrange the Financing Deal Beforehand
As a borrower with bad credit, you want to get your auto loan pre-approved before the end of the buying process. Look out for financial institutions that provide special programs for borrowers with bad credit. Such programs may charge high interest rates on the car loan, but they offer leeways for car ownership that other lenders may not provide. You also need to compare financing offers that the dealership may offer. Since most dealerships obtain significant income from car financing, they make offers that will benefit them without considering your credit status. The dealers usually partner with several lenders to market their car financing loans at a small fee. For example, if the car loan has an interest rate of 10%, the dealer makes an offer of 12%, so the additional 2% becomes profit for the dealership. Please click here for more information.