Car dealers can help in getting an approval for car financing even with a bad credit score. Low or bad credit is considered having a score of less than 629. There are many reasons why a low score is obtained. Some of these include late payments to different lenders, not enough number of years on credit history or identity theft. The credit score is a basis for determining the type and amount of interest paid on the car loan. A low score will definitely result in having to pay higher interest rate on a car loan.
Effect of applying for car financing on bad credit Car dealers can still help or provide car financing options. However, the bad credit score will have a negative impact on the terms of the loan. A good credit score of more than 740 will definitely give good interest and payment terms.
A loan can even come at a 0% interest rate for those with great credit scores. Bad credits will definitely receive loans approved with higher rates. Some can be as high as a 20% interest. Some may even reach near 30%. That would mean paying a few hundred to thousands of dollars more on a car using a car loan obtained on bad credit.
The main reason for the difference in approved rates is the risk. Lender and car dealers that offer car financing are more willing to accommodate those that show a history of financial stability and responsibility. People with good credit scores mean they are more likely to pay off the loan in a timely manner. Those with low scores mean they have higher risks of not being able to pay.
Red flags that can get in the way of getting good loan terms include the following:
Other things that can affect loan approval and terms include:
All these can have a negative effect on a loan application. However, some car dealers will still go ahead and approve a loan but at a higher interest rate.
How to get better terms on bad credit
Car dealers can offer good enough loan terms. That is, if the applicant knows how to convince the dealer of responsibility and stability when it comes to finances.
Loans may also be obtained from other sources such as:
Avoid settling for the first offer that becomes available. Make sure that the terms are fair and that it will not hurt your credit score in the future. Also, beware of scammers and unfair terms.
What to watch out for
Again, even with bad credit score, a fair loan term must still be in effect. Yes, the interest rates will be higher but the overall terms must not take advantage of the applicants situation.
First of all, check if the lender, car dealership or financing institution is reputable. Next, verify if the credit score reported by the lender is true. It will be better to confirm credit scores personally rather than relying on what the lender tells you.
It will also be better to shop around for better deals. Check with different institutions and dealerships and see which one offers the fairest deal.