Bad credit is an issue for many people. Since the recession, families have struggled to stay on top of their debts, due to rising costs and high unemployment. This has led to missing payments on loans and some having to file for bankruptcy. Bad credit makes it hard to gain any form of credit in the future but the good news is that you can gain a car loan with a few steps.
Why is Your Credit Poor?
Take some time to look into your credit report and find out why your credit is poor. Do you have outstanding balances on debts? Have you filed for bankruptcy? Have you got a few overdue bills? By knowing your problem, you will be able to take the steps to improve your credit rating and will increase your chances of gaining that finance deal.
Bear in mind that most accounts will stay on your credit file for two years after being closed so can affect your credit for that time. Bankruptcy will stay on your file for six to seven years and will affect you for that term. While this is the case, it is worth taking the steps to repair your credit rating by paying off debts and unpaid bills. This will help you in the future.
Ask for a Smaller Loan
You will have more chance gaining a financing deal if you ask for a smaller amount with a shorter term. This means that the lenders suffer a smaller risk by accepting you. However, this will not guarantee approval. It is also important to look at the different types of loans to find those who are more likely to accept you.
Prove Your Ability
Another option is to prove that you can make the payments. This requires proof of income and all outgoings, such as bank statements and payslips. You will be able to show the amount of disposable income you have available and that you are not overstretching your finances. Again, this will not guarantee acceptance, but lenders are able to see that you can make repayments to the financial agreements.
Research Lenders Most Likely to Lend to You
Some lenders specifically cater for those with a bad credit rating so it is worth researching into these. The one thing to note is that you will usually have a higher rate of interest to counter the risk that the lender is taken. The higher interest rate will mean that you will pay more in the long term but may be worth it if you really need the finance. On the plus side, having the credit agreement and sticking to it for one or two years will help prove that you are a sensible borrower and will mean you may be eligible for a refinancing deal at a better rate.
Refinancing in the future means that you could gain a lower interest rate. This will help you pay off less in the long term for the car loan. However, you will need to prove that you are a good borrower and sensible with your money and make sure other areas are perfect to gain the best refinancing deals.
Get a Co-Signer
If you are still struggling, you may benefit from having a co-signer. This will be someone with a better credit rating to you who will be able to sign against the loan. The creditor will be able to gain the money from the co-signer if you fail to stick to the agreement.
While this is beneficial to you, it may be difficult to find someone who is willing to do this. The problem for the co-signer is that they will be stuck with your debt if you fail to keep up with repayments. They may insist that there is a legal agreement in place between the two of you should that happen. Their credit rating will also be affected by having the loan on their report, especially if you fail to meet the repayments.
Take the time to shop around and find the best option for your loan. Getting a car loan with bad credit is possible but it is also difficult. You will need to prove that you are sensible with your money and show that you are not the risk your credit file makes you out to be.
Tim is a full time writer but has worked in the finance industry for many years. He predominately writes on topics about financing, such as getting bad credit car loans Massachusetts.