The responsible thing to do is include the obvious disclaimer “if you have bad credit auto loan, you probably shouldn’t be financing a car loan!” There, it’s said. The obvious aside, sometimes we don’t have a choice. While you could go and spend that bit of money you saved up on a second hand vehicle in a private sale – there are no guarantees that it will be reliable, or even safe to drive. Dealership are accountable for the product they sell, and you know a vehicle has to be up to a certain standard before it can be placed on a car lot.
Wouldn’t you much rather invest that small savings in a vehicle you can count on? Use it as a down payment and finance the rest of the purchase price? Sure! Who wouldn’t? But for those of us who don’t exactly have a stellar credit score, this can be problematic. There is always one company or another out there claiming they don’t care what your credit score says, they’re willing to finance your vehicle. But can you trust them? No, no you can’t. Although they are telling the truth, they will finance your vehicle purchase, what they aren’t telling you is more important. That financing is going to come at an outrageous price: an interest rate of 18% or more! Yikes!
So what do you do?
Well you can always just suck it up, slap down you down payment and walk off the lot with a new or nearly new car – even if you can just barely afford the payments. Another option is to check your credit score before you begin car shopping. If it’s 620 or lower you will be that lucky person getting offered an 18% interest rate. If it’s higher than 620, there is a good chance you can get financed through an average dealership, but your options and price range will be very limited.
Can I change my credit score?
Absolutely. Credit scores are dynamic and respond to your financial habits. Unfortunately, if you take on that 18% interest rate, your credit score will probably tank further and the high payments will make it very difficult to get on top of the debt you had before.
What you should do, if your score is below 620, is dedicate a few months to paying off some debts. Take that savings you were going to use from a car and pay off an old debt or a portion of a credit card. As soon as you begin regulating your payments on your phone bills, credit cards, and other loans (www.usa.gov/topics/money/credit/loans.shtml) or lines of credit, you will see your score begin to rise slowly. In as little as six months you could have a decent score that will get you a fair rate on a car loan. It’s worth the effort.
But I really need a car!
You think that, but the chances are you don’t. Carpooling and pitching in for gas is a great alterative to owning your own vehicle, especially for a short amount of time. Another option is public transportation. Bus or train passes can make commuting to work or school a breeze, and you won’t get stuck in your drive way by the plow at 7AM. If you have children and you are worried about getting them to doctor’s appointments or emergencies, consider asking family to help out when necessary, and if there is an emergency, call 911.
When deciding if a bad credit auto loans is right for you, you need to look at the big picture. It’s not complicated, you just have to prioritize. Is it more important to spend a little time fixing your credit so you can secure a fair and affordable loan, or is it better to take that high interest rate and crash your credit rating further?
If you need a vehicle, you can get a car loan even if you have bad credit. There are third-party companies that specialize in credit repair and advising on situations like this – including giving you an idea of how it will impact your current credit situation. Above all else, the most important thing is being informed. Do your research and look at a detailed report of your current credit before making any decisions.