Car loans are relatively easy to get, even for people with bad credit; however, you should take precautions before applying for a bad credit car loan so that you will end up with a decent loan that you can live with. Here are three tips to keep in mind if you want to find the best loan possible but have bad credit.
Get Your Credit Report
In Canada, you can get a copy of your credit report each year, and you may be able to get this for free. Requesting a copy of your credit report is important to do, whether you need a loan or not, because it will reveal a lot of information. When you get this report, you should make sure it is accurate. If there are derogatory remarks on it that are not correct, your credit score will be lower than it should be.
By obtaining a copy of your credit report, you will know exactly where you stand, and you can use this information when applying for a loan. If necessary, dispute any inaccuracies you find on your report and wait for a few months until these changes have been made. If you do this, your credit score could improve, which may help you get a better interest rate on your car loan.
Use a Co-Signer
When you get a loan in your name, the loan terms are generally based on your credit worthiness. If you have great credit, a dealer may give you a loan with a really low rate. For borrowers with bad credit, car lenders will raise the interest rates to compensate for the higher level of risk they assume.
By borrowing money for a car with a co-signer, the lender will base the loan on the co-signer's credit. If the co-signer has perfect credit, your loan interest rate will probably be a lot lower, simply because this person has a lower level of risk.
The benefit of buying a car with a co-signer is that you are still able to build your credit. When a person co-signs, the lender will report the payment history to both names on the account. This information is normally reported to the major credit bureaus, and it will help you rebuild bad credit as long as you make your payments on time each month.
Consider Buying a New Car
While it is easy to get bad credit car loans from specialized dealerships, there is another option you may want to consider. According to Edmunds, people with bad credit may be able to get approved to buy a brand new car, even though their credit scores are low.
The logic behind this is that there is a lot of equity in a brand new car. If the person fails to make the payments, the dealer would be able to take the car back and not lose any money on the deal. The downside to this option is that you may be required to put a hefty down payment on the car, and you may not have a lot of extra cash to use for this.
While bad credit car dealerships may charge higher interest rates, it is often so much easier to just stick with a dealer like this if you have bad credit. These dealers specialize in giving loans to people with bad credit, and they are able to finance almost anyone that walks through the doors. They also may be able to get you a car without you having to put a lot of money down on it.
To learn more about your options in buying a car with bad credit, talk to a dealer in your area. You may discover that this is the best and easiest option when you need a car quickly.