Don't Let Bad Credit Stop You From Getting Your Car Loan

There are many bad credit car loan options that will help you own your own vehicle while rebuilding your credit. The most important thing to remember is you will have to work a little harder to get a car loan that will work for your situation. Opting for the easiest route to a loan will end up costing you a large sum in high interest rates. Spending time exploring options will help you choose a loan that is beneficial to both your wallet and your credit score.

Where to Find a Loan

You have several options for loan sources

  • Banks and traditional lenders will be the most risk-averse in car loans. They are least likely to extend you a loan without collateral or a co-signer. 
  • Dealers have a greater incentive to fund your loan. They would like to sell you the car, and the loan will give them an additional revenue stream. 
  • Finally, alternative lenders, such as independent financiers and online lenders, tend to serve the high risk market well. These lenders will charge you high interest rates. However, they may fund your loan despite lack of collateral, without a cosigner and with your current low credit score. 

How to Fix Application Errors

No matter where you apply, you will need to put forth the best application possible in order to secure a loan. Online lenders may require less from an application; however, since they are judging you on your credit alone, you will find they have the highest financing costs. Aiming to use a dealer financing option or bank will yield better loan options and lower costs. To do so, you will need to make your application appealing despite bad credit.

There are two basic ways to do this: one, show you had a unique situation that caused your bad credit and is no longer affecting you; two, show your income is high enough to support the cost of the loan. If you can prove both of these things to be true through supplemental information, a bank or dealer will be more likely to fund your loan. 

The Best Loans for Bad Credit Borrowers

Aside from going to a bank or dealer instead of an alternative lender, you should also aim for the best loan options available to rebuild your credit. The basic rule is this: the higher the risk associated with the loan, the greater the reward to your credit.

  • Taking a loan without a cosigner is important if you want to improve your credit score. If you include a cosigner on your application, then you will not be showing future lenders you are capable of handling a loan on your own. You are also splitting the risk, which will result in a mitigated affect on your credit score.
  • Most car loans will use the car itself as collateral to secure the loan. In some high risk situations, you may be asked to place additional collateral. You should avoid doing so. When you place an asset collateral, you are subtracting it from your asset list. This means your debt to asset ratio will suffer.
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