How to Get an Auto Loan With Bad Credit
Traditional financial institutions, such as banks and credit unions, are known for their reservations when it comes to lending to borrowers with poor credit scores or messy credit histories. However, this doesn’t mean that people with bad credit can’t get a loan. In this guide, we’ll discuss how to get an auto loan with bad credit.
What Is a Bad Credit Auto Loan?
A bad credit car loan is a type of loan that lenders typically lend to borrowers with low credit scores whilst using the borrower’s car as collateral for the loan. In simple terms, if you have a low credit score (minimum credit score is typically around 500-580 FICO score), you transfer the qualifying title to the auto lender in exchange for the loan.
These types of loans are great for several reasons, as the loan application process and loan approval don’t take more than a few hours to complete, and the loan amount is typically transferred to your checking/savings account within 24 hours or the next business day.
The best thing about these loans is that you get to keep driving your car as long as you make timely monthly payments for the duration of your loan. However, there are some drawbacks. If you default on your loan and don’t refinance it, you might lose your vehicle.
Considering that they’re secured loans for individuals with bad credit scores, they typically have higher interest rates than loans for people with good credit, but they also have lower interest rates compared to some other financing options, such as payday loans.
How to Get an Auto Loan With Bad Credit
One of the best things you can do before obtaining an auto loan with bad credit is to contact the credit bureau and learn your credit score. It’s a common misconception that bad credit loans don’t involve credit checks; they do check your credit report, as your credit score is used to determine your personal loan terms, such as interest rates and loan amount.
Once you know your credit score, see how you can improve it. If it’s possible to pay off any outstanding debts, like credit cards and phone bills, you should do so, as it improves your credit score and provides you with better loan rates.
However, it’s important to note that online lenders don’t do hard credit checks that would further affect your credit score. Additionally, you might want to consider lowering the amount you need to borrow. This would allow for smaller loan payments as well as more favorable terms. Additionally, you might want to consider having a co-signer on standby.
After you’ve sorted your credit and adjusted your amount, you need to prequalify for the car loan, send in all the necessary data for evaluation, and wait for the company’s representative to contact you. You’ll have to provide your personal data and the make, model, and year of your vehicle.
Once the lender reviews your prequalification data, they’ll call you with available loan options, after which you sign your used car or new car title to the lender in exchange for the loan. New car loans can be tricky and involve lease buyouts, especially if you don’t own your vehicle entirely, but used car loans typically don’t require anything special but your name on the title.
Repaying the Loan
Repaying the loan is really important to avoid vehicle repossession. The best car loans are typically the easiest to pay off. Sure, they still feature relatively high-interest rates, but quality lenders won’t charge any penalties for repaying the loan sooner than expected. In fact, if you prepay the loan, many lenders will report your actions to the credit bureau, which might have positive effects on your credit score.
Summary
Auto loans for bad credit are personal, secured short-term loans during which you transfer the title to the lender in exchange for loan funds. You’ll still get to keep driving your car for the duration of the loan until the loan is paid in full. If you’re facing financial difficulties and considering getting a car loan for bad credit, don’t hesitate to contact River City Federal Credit Union.