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Bad-credit car loans may not be easy to find, but if
you need a car, they are worth it.
Bad-credit car loans carry a higher risk to the
lender, so the borrower must pay a higher than usual
interest rate. You probably will need to apply to
more than one lender and give more documentation.
Still, a bad-credit loan is worth the trouble
because it not only lets you get the car you need
and want, but can also help improve your overall
credit rating.
Getting a Car Loan with Bad Credit: 4 Steps
1. Contact Equifax, Consumerinfo, or TrueCredit
online for your credit score or to make sure there
are no errors on your credit report. You can usually
dispute the incorrect information online or over the
telephone. If you have correct unfavorable
information, you can write a letter to the company
that reported the unfavorable information, asking
them to remove that information or make a note that
your accounts are now in good standing. Usually they
won't do this, but it doesn't hurt to try.
2. Determine your credit score (also called a FICO
score). There are simple online guidelines for
estimating your credit score yourself. Still, to get
a truly accurate score, you need to purchase it from
the credit bureaus.
a. Note that each bureau may have a slightly
different score (and possibly a very different score
if they have information the others do not). There
are online credit-monitoring services that will
provide you a single report with all three reports
and credit scores.
b. A score of over 680 out of 850 will get you a
low-rate auto loan. Under 680 will mean a higher
rate but a loan is still quite likely. Bad credit
begins around 650 and lower. You will be charged
high interest no matter where you go, and may not
qualify for as large a loan. But it will still be a
loan nonetheless.
3. Look on the Internet for names of lenders that
specialize in bad credit car financing. They can be
private lenders, car dealers or any website offering
this type of loan help. Compare the rates and terms
with what your own bank offers. Make a short list of
lenders with good rates and terms.
4. Call up the lenders and ask them about their
credit guidelines. They will often be reluctant to
state a single FICO score, but you can sometimes get
them to tell you a range. It’s important to make
sure you have a fighting chance at approval before
applying. A bunch of rejected loan applications will
look bad on your credit report--creating a vicious
cycle that makes it even harder to get a loan.
Bad Credit Car Loans: A Typical Story
Stephen got a credit monitoring service to provide
him with his reports from the three credit bureaus,
as well as their three FICO scores. He was shocked
to find his credit score was 560. He was reported as
having defaulted on one of his students loans, which
was incorrect. He was able to get that removed
quickly. But his credit rating was still well below
650.
What should Stephen do now? Of course, Steven should
work to repair his credit rating:
• Pay all bills on time.
• Stay at the same address and the same job for a
few years if at all possible.
• Contact the lenders who reported negative
information to the credit bureaus to see if they
will remove it or amend it to emphasize that his
accounts were eventually returned to good standing.
But in the meantime, Steve needs a car loan. His job
isn’t a on a bus route and he can’t pay cash. After
careful research on the internet, Steve finds he
could get a high-interest bad-credit auto loan. The
loan will also give Steve another chance to restore
his credit.
To take a bite out of the interest, Steve gets a
friend of his who’s a mechanic to help him find an
inexpensive but reliable used car—which means a
smaller loan and therefore smaller interest
payments. He also dips into his savings and 401(k)
to pay as much up front as he can, since the
interest on the car loan will outpace the interest
he could earn on these accounts.
Five years later, Steve’s credit rating is as good
as gold and he trades his used car in for the car he
always wanted.
What will you be driving in five years? If you plan
well and get the best deal possible on your bad
credit car loan, you’ll go far whatever you’re
driving.
About the author:
Joel Walsh has written more tips on how to get a car
loan with bad credit:
Car loan
with bad credit"
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