More people experience problems with their credit these days and if you need a new car to get to work or just to get around with, you will want to find a way to fix the problem in the long term and get a finance deal sorted in the meantime.
Places like Cross Keys Auto car lot will always try to find a way to get you a finance deal if you have got bad credit and there are some things that you can do to help the situation like finding out your credit score so you know where you stand.
Before you go for a car or a loan
The starting point in your search for a new used car on finance should be a realistic appraisal of what you are likely to be offered.
Even if you have bad credit there is car finance deal out there for you, but you will have to expect to pay a higher interest rate on your loan as you will be considered a higher risk by the lender.
One of the main credit reference agencies recently reported that just under 30% of new-car buyers and slightly over 50% of used-car buyers had credit scores below 660 when they applied for finance. The figure of 660 is the line in the sand where if you are below that figure you will be classed as being a greater credit risk than if you have a score above this number.
There are three categories below the 660 score with anyone that has a score below 500 being considered deep subprime, and this group of borrowers make up about 30% of used car loan applicants, so there are plenty of us out there who don’t have a perfect financial profile.
Your first step should be to get a copy of your credit report from one of the recognized credit bureaus so you know what to expect when you apply for a loan and can be realistic about what to apply for and how much to borrow.
The lower your credit score is the higher the interest rate you will be charged and this can make a big difference to the monthly repayments. If you know your credit score is in subprime territory, you might want to look at a lower value car to buy so that you don’t overstretch your budget, which will make your score worse if you miss any payments.
Putting things right
If you have taken a few financial knocks, it will cost you a higher interest rate on your car loan because you are considered a greater risk by lenders, but if you make sure you don’t miss a payment and pay off the loan without a hitch it will go a long way to repairing your credit score.
If you maintain the regular payments on a loan for at least 18 months, there is a chance that you might be able to negotiate a lower interest rate or get a cheaper loan. You may have to be flexible with the car you can get based on your initial credit score but if you work at keeping up the payments on time, you should be offered a better rate and even a better car, the next time you want to change your vehicle.
Car loans can help repair your score
Auto loans are often easier to qualify for than mortgage finance and some other types of loan, which actually makes a car loan a useful tool in being able to repair your credit score and demonstrate your ability to meet repayments on time.
As already stated, you will have to suffer a bit on the interest rate to start with if you have a low credit score but the good news is that you not only get the chance to prove your reliability and boost your credit score for next time, but you also get to drive away a car that you want in order to get around.
Check your credit score to see that the lender is accurately reporting your repayment history to the major credit bureaus and if you can afford it, consider making extra repayments as this should also help you improve your score.
You will need some patience to repair your credit score as well as displaying responsible financial behavior, which is why it is worth keeping an eye on your credit score on a regular basis so that you see the progress being made in getting your financial reputation restored.
Janice Ingram is a bank loan officer. She enjoys writing about money-related topics. Her articles can be found mainly on finance and money sites.