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Is Obtaining a Bad Credit Car Loan Possible?

Car Loans > Car Loan Articles > Article: Is Obtaining a Bad Credit Car Loan Possible?

There is a growing population of people with poor credit files. Poor credit or not, these people require transportation. Because of this, there are lending companies that are specializing in bad credit auto loans. Bad credit auto loans are advertised on a daily basis. These ads create the idea that debtors and those with bad credit can buy a vehicle no matter how low their credit rating. Most of these advertisements are based on truths, but there are circumstances that make accepting one of these loans far more detrimental than beneficial. You can be approved for an auto loan if you have bad credit. The hard part, unfortunately, is receiving a good deal on financing.

Some lenders immediately refuse applicants with poor credit. These lenders institute criteria that make approval for loans more difficult. They are only looking for customers with above average credit scores. These loans are called prime loans. The lenders that approve applicants with bad credit ratings are called sub prime and high-risk lenders. If you find yourself unable to obtain a prime loan, follow these tips to obtain a high-risk car loan:

Research and Compare Auto Loan Companies

Many people assume that finance companies have their best interest in mind. This assumption is dangerous. Be aware that sub prime lenders and high-risk loan companies know they can charge you higher interest rates because of your low credit rating. The loan companies' main concern is what they can gain from doing business with you. They are in the business of making money. You are not their friend. Lenders know that you are in a tight spot. Lenders believe you are desperate and will take what they offer you, no matter how dismal. Lenders will charge higher interest rates and require a larger down payment because of your low credit rating.

This is why comparing lending companies is crucial. Failing to compare rates leads to paying more over the lifetime of your loan. Do not work with the first company that offers you a loan. Tell them you need to assess all of your options. Talk to several companies and see who can offer you the best rate.

Know Your Credit Rating

Get a copy of your personal credit file before you apply for an auto loan. By knowing your credit rating, you will have a better idea of the interest rate you might be offered. If you have a bad credit rating, expect a higher interest rate. Likewise, applicants with good credit ratings can expect lower interest rates.

If your credit score is extremely low, the lender might require a down payment before offering you a loan. Your down payment could range anywhere between 20-50% of the total cost of the vehicle. Interest rates can range from 8-26%. In most cases, applicants with bad credit scores should expect to pay an interest rate within the 8-18% range. Although this seems high, remember the positive aspect: these loans, when paid on time, serve as a tool for rebuilding your credit. Once you get your credit rating moving in a positive direction, you might be able to refinance the loan at a lower interest rate.

Be cautious: some finance companies recognize that very few borrowers know their credit score before they come in to purchase a vehicle. This allows the dishonest companies to take advantage of the buyers who have not checked their credit report before applying for a loan.

Improve Existing Lines of Credit

Before applying for an auto loan, attempt to improve the status of your other lines of credit. If you have any past due accounts, try to catch up before applying for auto financing. Delaying financing for 6 months to a year will allow you ample time to reduce credit card balances and reestablish a regular payment schedule. In doing this, your credit rating will increase and your chances of getting a reasonable rate on an auto loan will increase as well.

Some borrowers will be unable to obtain a bad credit loan. If you are not prepared to make a large down payment and you have bad credit, you are probably not going to be approved for a loan. Debtors in the middle of bankruptcy proceedings will also have a difficult time financing a car until the bankruptcy case is resolved.

Do not get discouraged if your first several attempts to finance return denied. You might have to settle for your second or third car choice. Then, you can begin rebuilding your credit. Once you improve your credit score, you can get a car despite your previous bad credit history.

 

But What About Finance?

 

The next time you are trying to obtain a car loan, consider a car finance broker, as they may be able to save you a lot of time and also save you money by getting the best loan for you with the lowest overall repayment.

There is a big selection of car finance brokers available, so we put together 5 tips for you to help you decide on which car finance broker is best for you.

Tip 1. Lenders

Does your car finance broker just use a couple of lenders, or do they have many lender accreditations?

The more lenders your broker has, the better opportunity they have of getting you the best deal. Due to every motor financier assessing car loans and their interest rates in very different ways, a wider selection may get you that much better deal, or may be able to get you that car loan approval where you thought or was told by many others was not possible. Source: www.carloans.com.au/bad-credit-car-loans

Tip 2. Transparency

It is important that your car finance broker is well informed and provides you with everything that you require to know and more. They should be able to give you what you require in writing if they have nothing to hide, and this also protects you if a disagreement is made between you and the finance broker. If the finance broker does not want to discuss with you important factors such as interest rates, early penalties or complete fees and charges, move onto a new car finance broker that has no problem discussing these important factors with you.

Tip 3. Licencing

Under current credit legislation, any car finance broker is required to either be a credit representative under an Australian Credit Licence holder, or have their own Australian Credit Licence. This ensures that the finance broker is adequately trained with ongoing training requirements, is fully insured and is a member of an external dispute resolutions scheme such as the Financial Ombudsman Services ("FOS") or Credit Ombudsman Services Limited ("COSL"). If your broker is trading without proper licencing, you can be at risk of dealing with someone that is not qualified, or adequately trained. Source: http://www.cosl.com.au/

Tip 4. Are You Able To Visit Their Office?

You want to make sure that your car finance broker is actually in Australia and not trying to trade overseas as an Australian entity. There is too much risk of fraud if they are not physically in Australia. The best way to check this is to ask the finance broker if you can visit their office. There are also other checks you can do using the internet, such as Yellow Pages or Google Maps for example.

Tip 5. Do They Provide Other Services?

A good finance broker will provide other services, which may include a car broking service, or they should be able to offer insurance products for your vehicle and your loan. Insurance products that they may be able to offer could be vehicle comprehensive insurance, vehicle warranties, loan protection insurances and shortfall protection insurances. These products don't suit everyone, but it is nice to have the option so that you can decide whether it suits you or not, as opposed to using a broker that does not make these products available giving you no choice at all.

 

What to do next

Finance Comparison lists a number of highly competitive car loans that you can apply for online. Simply compare rates, terms and apply online.

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