Archive for November, 2009»
Whether buying a new or used car, people that have bad credit are constantly hitting the brick wall of being denied financing with auto loan. While the goal of purchasing a new vehicle might seem impossible, the truth is that people actually have various options. Of course, lenders are cautious when dealing with a person that has bad credit because they want to eliminate or at least reduce risk of losing money. Just as individuals have been hit hard by the current economy, car dealerships have also struggled. Therefore, getting a car with bad credit would likely present challenges but by making the right decisions, it is possible to get auto loans.
Because so many people have bad credit, dealerships and lenders realized something had to be done, which has resulted in unique programs to help. One tip would be for the car buyer to conduct research to locate the best possible lender rather than simply hitting everyone. Then, the person should complete an application for one lender at a time. The reason is that when an application for a new car is submitted, the lender pulls a copy of the person’s credit report. This shows up as an inquiry, which is fine but when creditors see numerous inquiries within a short amount of time, it actually lowers the FICO score, which in turn, reduces the possibility of being approved for a auto loans online.
If possible, the person with bad credit that wants to buy a car should spend six to twelve months cleaning up his or her credit report prior to applying for an auto loan. Although some reporting items to include a bankruptcy, liens, and judgments take between seven and eleven years to be removed, the individual could clean up other items that might make it easier for loan approval. This person would need to make sure that every payment to creditors was paid on time, that any discrepancies on the credit report were corrected, and that no new credit in the form of loans or credit reports were taken out.
One of the biggest problems in trying to secure a car loan for the person that has bad credit is the high interest rate charged. People with good credit are offered low rates but people with bad credit get the high interest rates. This means the overall amount being spent on the vehicle and the monthly payment would be more than someone that has a clean credit report. However, some people with bad credit take out an initial loan at a higher interest rate and then in about one to two years into the contract and after getting the credit report in better shape, they refinance.
Buying a new car with bad credit is done in one of two ways, as a secured loan or as an unsecured loan. With a secured auto loan, the individual would use some type of collateral as security to the lender. This might be a home, boat, 401K, or perhaps another vehicle. In this case, lenders have better peace of mind realizing that if the loan were defaulted on, they would be able to recoup losses. Additionally, the buyer would benefit by getting a car loan with a lower interest rate.
The second option would be an unsecured loan, which means that no collateral would be used. Again, some lenders have designed unique financing solutions but for an auto loan using no collateral, the individual would be expected to pay significantly higher interest on the loan. However, for someone that realizes there is simply no other way to buy a car this would be a consideration. In addition to having the option to refinance the loan later, as long as the borrower paid the loan payments according to the terms of the contract, he or she would also be rebuilding a stronger and better credit history.