If someone says you have bad credit,they mean you have a poor credit score. Generally people are given a poor credit score for having a bad credit record. This can be attributed to not paying on loans, home mortgages, bills, or services, or submitting these payments past their due date. To financial institutions, people with poor credit scores are considered high risk, and it can be very difficult for these people obtain a reasonable rate on a secured loan. A question that is often asked by “high risk” borrowers: Is it a smart idea to apply for a car loan if I have a bad credit rating?
Analyze the Implications
Your poor credit score negatively effects you in may ways:
- Depending on the state of your credit, your loan request may be denied.
- If your application is accepted, the lender can still charge you a higher rate of interest.
- In considering the purchase of a car, the seller might not give you a good price, or may charge extra.
There are niche lenders that will loan you the amount you’ve requested, but you will be required to repay the amount you’ve borrowed, plus the rate of interest on that particular loan. A person with an average credit rating can find financing for a car for 10% interest rate, with a 7 year term to repay that loan. Conversely, someone with a poor credit score can find financing for a car with a rate of interest somewhere between 5% and 26%.
A person with bad credit will have 2 to 4 years as their loan term. Also, you may be required to offer 50% of the total loan amount as a down payment.
Analyze the Solution
After considering the implications of bad credit, it’s easy to see that securing a car loan, if you have bad credit, is a bad idea. If you are considering the purchase of a new car and have bad credit, consider these questions: Am I able to pay the high interest rate for a “high risk” loan? Am I willing to sacrifice a large portion of my income to pay this loan each month?
Isn’t there a way to find a decent car loan, even if I have bad credit? No. But there is a solution.
The finest way to keep away from the bad effects of bad credit car finance is not to think of getting one. First of all, start in the direction of improving the credit score. If you find some irregularity in your credit report dont take time to inform it. Handle your finances efficiently and start making payments on time.
Remember, it may take a few months to improve your credit score. Taking this into account, you can push back your wish of getting a new car. Be determined to turn your bad credit to good and you will see that it was worth waiting for a few months to get a new car.