Bad Credit Car Financing Made Easy

Bad credit car financing is possible for individuals overcoming a bankruptcy, default or other credit issues. All forms of bad credit financing will be more expensive than financing extended to good credit borrowers. This is the price you pay a lender for assuming greater risk than they will with most car loans. However, if you are willing to pay a little more, you can look into a variety of options for bad credit car financing.

Perfecting your Application

Even when you are applying for loans geared toward bad credit borrowers, you should be aware of the need to provide an adequate application. The most important element on your application will be your credit report. Since you know your credit score is weak, you should look to the next most important factors. Namely, showing why your score faltered and proving the threat of default is not still present.

Many people will see their credit score drop due to a time of financial hardship. Once you exit this time, for example when you find a new job after being unemployed for some time, you should be able to begin rebuilding your credit and financial status. You can either provide a statement regarding the problem on your application or submit it to the credit bureaus directly. This second option is a proactive step to mitigate the affect of bad credit. Contact the credit bureau that has reported your misstep. Ask to submit an explanation of the score drop. They will attach it directly to your credit report.

Seeking Alternative Loan Opportunities

Banks are the least likely lenders for bad credit borrowers. Banks will want additional security against default, such as more collateral or a cosigner. This is not the best option for you personally. Instead of approaching a bank, consider alternative sources. Direct dealer financing, independent financiers and online lenders present likely alternatives.

Dealers are often able to extend low interest rates to bad credit borrowers because they have an incentive to make the sale. Be aware of bad terms on dealer loans, such as adjustable rates or high financing fees. Independent financiers are typically individuals who have set up a small car loan operation but are not finance companies. You may find these individuals by contacting used car dealers in your area; independent lenders often finance used car purchases. Online loans tend to be the most expensive of the many options, but they are often pre-approved, making the loan process very quick for you. 

Building your Credit with a New Loan

The goal of your car loan should be to not just own a vehicle but to rebuild your credit. To do this, you should elect a shorter loan option and make the highest monthly payments you can afford. This will allow you to pay the loan off sooner. Not only does this save you money on the current auto loan, it sets you up well for your next loan opportunity. Once you have taken and paid off this installment debt, you will find your credit score will increase.

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