The economic downturn has made automotive prices go up over the last few years. On the other hand, it’s impossible to envision your commute to work or leisure activities without a car. In such cases, purchasing a second-hand car might be a smart move. However, the stress falls in as soon as you realise the bad credit score you have been carrying so far. Does having a bad credit score disqualify you from financing a used car loan? Let’s check if it’s a fact or myth…
Credit Score- A Silent Disqualifier or a Veiled Ally?
Credit Score is an indicator of your creditworthiness and reflects the sincerity of the borrower in repaying loans. The following is the commonly used credit range:
- 800-850 — Excellent
- 740-799 – Very Good
- 670-739 — Good
- 580-669 – Fair
- 300- 579 – Poor
The credit score is usually evaluated based on certain factors- payment history, total amount owned, length of credit history, and types of credit- to name a few. The higher the score, the better for you to secure a loan with lower interest rates. More often than not, a potential borrower lying in the Fair category may be able to secure a loan, given that they will be robbed of some discounts and relaxations. So, if you are someone under the 500-600 credit range, securing a loan would require some strategic planning and patience.
Tips to Secure Your Used Car Loan With Bad Credit
Having a bad credit score is no more a nightmare as banks or private lenders willingly finance a second-hand car loan but it does require some forestalling from your side. Here are a few tips you can consider while financing a used car loan:
Be Mentally Prepared for Larger Down Payments
Buying a car with bad credit is possible but it comes with certain surrendering. To better assure themselves about loan repayment in case of a bad credit score, lenders lend at higher interest rates. Since the chances of default are high for someone carrying a low credit score, the lenders tend to accept lesser risk here than in other cases. Therefore, a smart move on your part would be to pay a higher down payment to gain the trust of the lender. This way you will pay less interest on your overall purchase. The subsequent installments can be chalked out using a second-hand car loan EMI calculator that is readily available with lenders or on online websites.
Get a Loan at the Dealership
The growth of the automobile industry and its finance tie-ups go hand in hand. We are much ahead of the time when dealers had no role to play in the financing of the vehicle. Nowadays, major reputed dealers partner with banks or other private lenders and offer financing on-site to accelerate the car purchase process. But, the catch lies in reading the clause sheet thoroughly. That is because, under the garb of bad credit, such financers may charge an excessive fee that adds up to the overall interest on the loan.
Choose a Cheaper Car
A smart human executes Plan B as soon as his Plan A fails. In case you can’t get your loan approved, then it would be advisable to look for cheaper used cars available. Although the prices of used cars are fairly low, keeping a second option ready would be safe. A cheaper car would compel the lender to approve the loan even if you have bad credit. The monthly installments can easily be calculated using the second-hand car loan EMI calculator.
Arrange for a Co-signer
A co-signer is someone who agrees to repay the loan in case the borrower fails to. You can convince your friend, a relative, or a co-worker to become your co-signer as it will help you secure a loan. A few prerequisites of an eligible co-signer are that he should have a good credit score, stable income, and consistent employment for more than one year. Besides, bringing up a co-signer with a good credit score may help you secure a car loan at lower interest rates.
Getting a used car loan for people with bad credit is possible but costs them high. The lenders either finance the loans at higher interest rates or knock them over special discounts. By maintaining a good credit score, borrowers may conveniently increase their chances of loan approvals. But, in case you don’t have a good history of payments, taking steps like making more down payments and getting a co-signer may help you secure a loan.