Many lenders work specifically with buyers who have poor credit ratings. There are also many car dealerships that specifically cater to buyers with poor or low credit ratings. Here are a few tips to keep in mind when securing a car loan when you have poor credit in order to make sure that you still get a fair and reasonable loan.
#1 Pay Attention To The Length Of The Loan
When securing a car loan with poor credit, one of the things that you need to watch out for is how long the loan term actually is. You don't want to get locked into a loan that you are going to be stuck paying off for 6 or 7 years. A loan that you have to pay off for six or seven years is just too long, by that point in time your car may be worth less than what you owe on it. Instead try to get a loan term that is no longer than 5 years. That is enough time for you to pay off your car loan without the value of your car depreciating too much.
#2 Pay Attention To The Interest Rates
The next thing that you need to pay attention to when securing a car loan when you have poor credit is the interest rates attached to your loan. The interest rate is how much you will pay above and beyond the cost of your vehicle. The higher the interest rate, the more you will end up paying in the long run for your vehicle. Although you should expect to pay a higher interest rate because of your poor credit rating, make sure that the interest rate is still there and is not so high that you end up underwater with your loan.
#3 Save Up For A Down Payment
When you have a poor credit rating, one of the things that you should do is save up for a sizable down payment. That will show the credit lender that you have taken the time to save money and plan for the purchase of a new vehicle. Additionally the larger your down payment is, the less you will have to take out in order to pay for the vehicle. The less you have to take out, the less you will own in interest, and the lower your overall cost is for your new vehicle.
#4 Don't Finance The Warranty Or Insurance
When purchasing a new car with poor credit, make sure that you are not financing the warranty for the car. When you include the warranty for the car and the overall purchasing price, and finance that total amount, you end up paying interest not just on the column but on the warranty as well. use some of the money that you saved up for your down payment to pay for any additional warranty or insurance offered through the dealership where you purchased your vehicle. That way you get those benefits without paying extra interest on them.
Just because you have poor credit doesn't mean you can't get a solid loan for a new vehicle. Try to save up as much as you can to lower the overall loan amount that you need to take out. Pay attention to the loan terms and make sure that the link is not too long and that the interest is not too high: you don't want to end up end up paying more interest than your vehicle is worth. Although you may have to pay higher interest than someone was great credit, you should still be able to get a car loan that you can afford with reasonable terms.
For more information, visit Autobank of Kansas City.
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