Having a car or other type of vehicle is a requirement for most people, especially if you have a family or a job that requires you to travel long distances. While it is quite possible to save enough money to buy a car in cash, most people need a car loan to pay for a car. Most people think they need to have an excellent credit rating to get a car loan, when in fact there are a lot of auto loans available for those with lower credit scores. Looking for and being approved for a car loan when you have a low credit score can be a bit difficult but not impossible, so do not be discouraged during your research.
Here are some important points to keep in mind if you are looking for a car loan but you have a low credit score.
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The first thing you should do before you start looking for a car loan is to check your own financial situation deeply. This means that you should request a copy of your credit report. Having a good understanding of your financial situation will make negotiating your auto loan much easier. If you think you have a low credit score but do not know exactly where you are, you will be more likely to pay more for a car in assuming you are offered the best rate you could get. Do not get caught by car dealers!
Once you get your credit report, go back to make sure the information is correct. It is possible for an error to slip in and decrease your credit rating. Give yourself at least a month between when you request your credit report and when you want to start looking for a car, this way you will have plenty of time to correct mistakes.
Now it’s time to start looking for a car loan without credit checks that best suits your needs.
The most important thing you can do while shopping for a car loan is to set a two-week deadline and make sure you do not exceed this time limit. The reason for this is that every time a dealer asks for a copy of your credit report, this query looks like an investigation into your credit report. These inquiries can affect your credit score if requests are repeated frequently. But if all your auto loan applications occur in a short period of time, all these claims will appear as a single investigation.
Finally, do not accept a price or interest rate that does not seem right for you.
How to save on your car loan
Unfortunately, if your credit score is low, you will probably have to pay an above average interest rate. But, having a credit rating that is low does not mean that you will have to ruin yourself to complete your auto loan payments. Here are some tips to help you save money on your car loan.
Choose a Short Term Loan: You may be tempted to choose a term of 5 years or more for your auto loan in order to decrease the number of your payments, but it is much more economical to choose a term of 3 years. The majority of loans of 3 years and under have lower interest rates and therefore you will save on interest since the loan will be paid back faster.
Consider a new vehicle: If you can, choose a new vehicle and not a used car as these usually come with more competitive rates. Obviously, this is not always an option for some because even if the interest rates are lower, the price is definitely higher. If you find a special offer on a used vehicle, weigh the pros and cons and do not hesitate if this happens to be the best deal for your situation.
Choose the basic model: Your dealer will probably try to convince you to make several additions to your car, explaining that you will only have to pay a few extra dollars each month. Do not be fooled, if you are looking to save money, keep your initial plan. These few extra dollars each month will start to accumulate and your payments may become too difficult to manage.
Consider a Private Loan: Having a low credit score does not mean you need to get financing from a dealer. In fact, you will probably be able to get a better rate from a private lender.
Pitfalls to avoid
Seeing that your credit rating is low, a dealer might try to take advantage because he knows you are more desperate to be approved than someone with a slightly higher credit score. Here are some auto loan pitfalls that you should be aware of so that you can avoid them when shopping for a car loan.
Incentive: The most common pitfall in a dealership is upsold. Your dealer will probably try to make you take the more expensive model and make you spend more money, but you are better off staying firm and moving forward with your initial plan. Do not accept an offer you can not afford.
Yo-Yo Financing: Yo-Yo financing is the name given to the fact that your dealer allows you to bring home the vehicle you have chosen before being officially approved for a loan, then reminds you a few days later and explains that your loan application has been rejected. They have now trapped you with a new price and a new interest rate hoping you will not realize the increase.
Loan Padding: When your dealer tries to increase the value of the loan by adding additional costs without telling you. They will offer you a higher price in the hope that you will not realize what they are doing and pay anyway.
“Buy here, pay here”: These types of dealers will offer you a loan regardless of your history and credit rating. Although it may seem easy, there are some disadvantages that can end up costing you. Not all dealerships that offer “buy here, pay here” terms are bad, but be aware of what rate of interest you can get from your bank to make sure you do not get caught with a rate far too high.
Auto loans are not reserved for those with high credit ratings. Having a low credit score should not discourage you from buying a new car. But be sure to follow the steps and stay informed about your own financial situation and you should be able to get the car you want and need.