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A low credit score of a borrower indicates “Bad Credit”. Generally, when the credit score is in between 300 to 630 it is considered bad. Some factors that contribute to low credit score or bad credit are bankruptcy, late payments and maxing out a credit card. You have a bad credit and you are thinking of buying a car, it is no more a problem. You must take the decision according to your situation. Lenders have now become more accepting to bad credit car loan applications and help buyers to purchase their car. Bad credit car loan situation arises but with little it does not mean that it is the end for car shoppers. They can always take the help of financing and enjoy many advantages as buyers with good credit do. Though there are certain aspects that applicants should work on before applying for bad credit car loans.
Research: Before buying a car, it is advisable to check your budget, financial situation, credit history and your affordability.
Credit scores and reports: In case of considering bad credit car loan application from a customer, several factors will be kept into account and mostly a decision based in part on credit score will be taken. The approval of the application and the interest rates also depend on your score.
Affordability check: You can use a budget calculator. It works by enabling you to enter your regular monthly expenses so that you can understand what amount is left with you for an auto loan payment. Now, the amount left for your auto loan payment together with loan term, down payment and annual percentage rate (APR) can be submitted into affordability calculator to know how much you can spend on your car. You can change the values and check for different results.
Annual percentage rate (APR): APR comprises of the interest rate (applied on the principal loan amount) and any transaction fees (rolled into the loan). APR along with loan term will affect the size of monthly payment as well as total payable amount for the car over the life of the loan. Market conditions, competition, special offers, current interest rates and credit history may affect the APR of a buyer.
Loan terms: A longer loan term gives you more time to repay the loan amount and reduces the monthly payment but when interest rates are considered, depending on the APR, you may end up paying much more in the long term. Shorter loan terms result in higher monthly payment and reduced time.
Down payment or trading: When a bad credit car loan is financed, one may improve their position by down payment or trading in current vehicle or both. It will lower the principal loan amount and show commitment towards the deal.
Auto loan co-signers: Co-signer is a person who agrees to repay the amount in case you fail to do so. A co-signer creates a positive effect on the loan application in case of a bad credit car loan.
No credit history / bankruptcy: After a bankruptcy, buyer with no credit history thinks that financing is not for them but there are many lenders who accept applications like this. A Co-signer, down-payment, and a vehicle trade-in, may place you in a better situation in bad credit car loan application.
Shop around for financing: It is advisable to shop around for lenders when you need to apply for finance. For bad credit car loan buyers, main loan providers are direct and indirect lenders.
Online application: Online application and process cuts out the middleman. It is quick and easy.
Dealership: A right dealer with right vehicle can make the process of buying a car quicker and easier for a buyer with bad credit. Hopefully the above information would be indispensable before applying for a loan with your bad credit.