Bad credit car financing is sometimes knows as second chance financing. Most car dealerships have taken into account that not everyone has perfect credit. Most finance departments at dealerships have at least one or two finance people that deal with subprime, or bad credit, financing. Their job is to find a loan company that will buy your loan even though your credit is not perfect. Based on your credit these loan companies will set specific criteria for the down payment, monthly payments and at times even the price range of the vehicle you can purchase.
They do not approve everyone, but in most cases, if there is a suitable car on the lot and you have a steady income and job history, they will approve you on a vehicle. Keep in mind it may not be the exact vehicle you want, but it will be a newer used vehicle or a new vehicle.
Most people are aware of their credit situation, so do not be embarrassed to let your salesperson know when you go looking for a car that your credit is not the best. They will be much more appreciative if they know that up front, and your purchase experience will be much easier. They will be able to guide you towards cars that you will more likely be approved for, as well as ones that fit into your budget. You will probably be required to put down more money as a down payment than someone with good credit does and your interest rate will be higher. If you have a vehicle to trade in, they will probably take it if it is paid off or very close to being paid off. If you owe a large balance on the trade in, that balance will have to be added onto your new loan, which can mean the difference between approval and denial for a loan. As long as you know that you may not be driving out with the most expensive car on the lot or the one with the most options, a bad credit car loan is a good option if you have bad credit and want to reestablish it.
Advantages
There are advantages to getting a bad credit car loan through a dealership. These types of loans allow monthly payments by mail or electronic transfer from your bank account. Setting up electronic transfers assures that your loan is paid on time every month, which helps establish credit. These companies do report to the credit bureau, so putting forth your best effort to make your payments on time can help reestablish good credit. Another advantage is that you are getting a car that is either new or a couple years old. This means that in addition to getting a car that is in better shape, you either have a full or partial manufacturer’s warranty. This keeps you from paying high repair bills as most items are covered by the manufacturer’s warranty for the first 36 months. If you get a newer used car, you may want to consider purchasing and extended worry for your peace of mind in case the need for any major repairs comes up over the life of your loan.
Disadvantages
You also want to keep in mind that there are disadvantages of getting a bad credit car loan as well. If your credit score is extremely low, you may have to put down up to 40% of the purchase price of the vehicle, or you may not be approved at all. Unless you have a newer car that is paid off to trade in, you will need a good amount of cash to put down on a bad credit car loan. If you are unable to make a large down payment and do not have a paid off vehicle to trade in, you also may be denied. If you are approved and start but start having issues paying your loan, they are less likely to work with you to make payment arrangements, and they will report any late payments to the credit bureau. They also usually have strict standards when it comes to repossession. For normal credit car loans, they usually allow up to 90 days to get your loan back on track if you have a temporary financial situation before they repossess it. For bad credit car loans, they may only give you 30 days to correct the situation before they repossess the vehicle. Any negative reports to the credit bureau on a bad credit car loan are much more detrimental to your credit than if you were late on a regular loan.
Summary
When you are in need of a new car and have credit issues, there are options to help you not only get a new car but improve your credit as well. Just make sure that you fully understand the terms of the loan before you sign, so you are sure that it is something you can handle financially. Do your best to save enough money for a substantial down payment so that you can increase your chances of being approved for a loan. Before you go to a lot do some research online for inexpensive cars so you have an idea of what your options might be before you even set foot on the lot. The more planning you do before you ever go to the car lot, the better chance you will be approved and driving home in your new car later that day.
