Having a car will give you more convenience than you expected. You can o whenever you want, you can avoid busy public transportation, and it just gives you the freedom to commute whenever you want. But what about when you have bad credit? Can you still apply for a loan? Is there any bad credit car loan? We’ll see.
When you plan to apply for a car loan, there will be factors to be considered. And your creditor will see your credit first before anything else. Do you meet their standard? Are you confident that you have a good credit score? Do you need credit repair first before applying for the loan?
How do you know when you have a bad credit car loan?
Different creditors have different standards for credit scores. However, having a high credit score can allow you to negotiate your interest rate. A credit score is a three-digit number that determines your creditworthiness, generally between 300-900.
Here are the Different Credit Score Ranges (Equifax)
- 800 to 850 Excellent
- 740 to 799 Very Good
- 670 to 699 Good
- 580 to 699 Fair
- 300 to 579 Poor
If your score falls on Fair, you might need help to get loan approval. Even though it is possible to apply for a car loan with bad credit, banks or other financial institutions can still deny you because of bad credit. Bad credit can also mean you have a high chance of defaulting.
You can go to alternative lenders when you want to apply for a car loan.
What do you need to prepare for a bad credit car loan?
Find an option that works well with your income, savings, and monthly budget. It is also essential that you know what the other costs that come with a newly purchased car are. Additional fees may include the following:
- Down payment
- Repairs and maintenance
Where you apply, what kind of vehicle, and how strong your financial health can affect your budget. Cars, obviously, have a different range of prices. That is why you should be strict with your budget. Conduct enough research to ensure that your choices align with your budget.
2. Make a decision if you want a new or used car
There are various pros and cons when deciding what type of car you will choose.
You may get better payment plans and interest rates if you want a new car. Your financial provider can help you with these; you can still negotiate even with bad credit. Though, it will still be higher than when you have an excellent credit score.
One more thing is it is safer and more reliable than the older model with higher mileage. You can also avoid possible repairs because it’s brand new.
If you plan on purchasing a used car, it can be affordable. You can also save from interest over time. Another thing is that value depreciation isn’t as much of a problem. Less depreciation means a better investment.
What others need to know is that used cars depreciate at a much slower rate after one year. While new cars continue to lose value for the entire first year. To conclude, a used car is a much better investment than a new one.
3. Get a car loan quote
Different lenders can give you other offers. That is why you must shop around for lenders, dealers, and retailers in your area. Some provide a free pre-approval process to determine your estimated loan payment. Remember, it may not be accurate, but more or less than the estimate.
You should provide the following to process your pre-approval.
- The make, model, and year of the car
- Gross income (monthly and yearly)
- Duration of your loan
- How often will you make the payments (bi-weekly, monthly, etc.)
4. Consider your options
Lenders have different requirements, rates, and payment plans for bad credit car loans. Compare offers of the lenders you went to. That way, you’ll get the best deal, even with bad credit. Make sure you choose someone who is flexible and has a good reputation. Read their contract carefully and make copies of the records. There’s nothing to lose in asking questions you don’t understand.
You can get a bad credit car loan in Canada in the following:
Even though they most likely deny your application, it’s worth the try. You can always argue with your side on why they should approve your application. Even though the chances are low, at least you exercise your options.
2. The Dealership
The dealership is the most common place borrowers with bad credit go to. They can help you get the best deals and are willing to work for everyone. However, being mindful of who you’re dealing with is essential because some dealers can exploit you. Shop around your area to keep you from being ripped off.
3. Private Lender
If none of your other options works, you should try private lenders. Private lenders could be your friends, family members, or other financial institution that do not associate with banks. Getting a loan from them can be riskier than from established companies, and they offer higher interest rates. In addition to that, they only offer short-term loans.
Purchasing a car is a serious financial investment. Even with bad credit, it is not an excuse that you decide hastily just because you wanted a car and have no choice because you have bad credit. That Is not true because you always have a choice. Just be careful about your choices because you might get an advantage if you do not do your research properly.