Buying a car can be a daunting and time-consuming task for consumers who have a past that includes bankruptcy, repossession or credit card default. However, if you’re one of millions of people who’s credit score is less than perfect and falls in the lowest grade on the rating scale, buying a car becomes even more difficult.
The first thing you must understand when buying a car with bad credit is that the interest rate on your loan is going to be significantly higher than that on standard loans. You want to be prepared when you go to the dealership and understand the nuances of the deal because if the dealer knows you’re unsure of scared, he may try to make this loan even more expensive. However, it’s important to understand that the dealer is still a businessman and wants your money, which gives you a certain amount of bargaining power. If you don’t like the deal being put on the table by the lender, you can always just walk away and go somewhere else.
The first step to buying a car with bad credit is to obtain your credit scores. You want to be as informed as you possibly can so you can be prepared for what the lender will tell you. The majority of lenders rely on your FICO score, which tells the lender how likely you are to default on your payments in the future. You can also get your three credit scores by going to other websites run by the leading credit bureaus, TransUnion, Experian and Equifax. When attempting to buy a car with bad credit, the lender may look at only one score or all three. Upon arrival to the credit bureaus websites, you will see that these credit scores cost money. While it is easy to forgo the cost and not know your scores, that $40 spent on credit scores today could save you hundreds or thousands some time down the road. If you don’t know your credit score, you may not be getting the best interest rate for your credit.
In case you are unfamiliar in this territory of buying a car with bad credit and don’t know whether your credit qualifies as “bad.” If your credit score is below 600, then you are eligible for a bad credit or subprime loan. When you go to get your bad credit loan, you should expect your interest rate to be between 15-17 percent.
Once you’ve obtained your loan, you should look for every opportunity to improve your loan situation over the next couple of years. The refinance market is growing and you should know during the first few months of your high-interest loan payments that there are better days ahead. According to experts, once you’ve established about a year of on-time payments, you should be able to find lenders who will refinance the remaining balance of your loan. Once you can refinance your loan and you make a habit of making on-time payments, you can sit back and enjoy your new car.
