How to Buy a Car With Bad Credit – Tips and Advice
A person’s car is one of their most important possessions. Without a car, many people would be unable to get to and from work, which would make it difficult to support oneself. This is why, when a person needs a car loan, bad credit can leave them in quite a predicament.
Fortunately, because a car is such an important possession, many lenders are willing to give auto loans to consumers with less than ideal credit. While these loans are a risk to lenders, they are not hugely so. This is because auto loans are secured loans, which means that a lender can repossess the vehicle if a borrower defaults on the loan. If you have poor credit, it is possible to obtain a bad credit car loan; you will just need to know how to do so.
When obtaining a car loan with poor credit, borrowers must understand that they will usually only qualify for a subprime loan. This means that their interest rate will be higher and the terms of the loan will be stricter. This is because the borrower is a much larger risk to the lender than a person with good credit.
To lower a borrower’s risk, they will want to purchase a used car, instead of a new car that will depreciate much faster. New cars depreciate as soon as they are driven off of the dealership’s lot. By the time a person has owned the car for a year, it may have depreciated by as much as 20%. By the fifth year, the car will have lost up to 65% of its value. Therefore, the older a car, the slower it depreciates and the less likely it is that a lender will lose money on a loan.
Lenders will also be more willing to give a borrower a bad credit car loan if the borrower is willing to make a sizable down payment. The larger the down payment that a borrower can make, the less of a risk they will be to the lender. This is because a large down payment proves a borrower’s commitment and lessens the risk of losing money on the loan.
When looking for auto loans, high risk borrowers will want to look for a lender that specializes in these types of loan. Not every lender will take on a high risk borrower. Those that specialize in helping borrowers with bad credit will be more willing to work with a borrower, regardless of their credit score. This will make it possible for you to get a car loan, even if you have had trouble doing so in the past.