Owning your own car is not just a luxury, but it is a necessity that most people must have, including those people with bad or damaged credit. You need your car in order to get to work, go shopping, and to take your kids to school. However, there are many people out there with credit scores that keep them from getting the financing that they need in order to buy the car that they need. If your credit score is below 500, you have what is known as horrible credit, and traditional financing options that are available to you are scarce or even non-existent. The good news is that while you need to work on rebuilding or repairing your credit file, there are lenders who will take a chance on you with damaged credit, even for those borrowers whose credit scores are below 500.
Less Worry About FICO Score
These lenders worry less about your FICO score and look more at what really matters to them – your ability to repay them when they loan you the money to buy a car. These types of bad credit car loan servicers are accustomed to dealing with those who have bad credit, and in their eyes, the car itself stands as collateral for the loan. This means that the lender looks at factors like your length of time at our current job and the amount of pay that you receive for doing that job. They also take into consideration your other income, or income that other people in your home receive. For this reason, it is always best to include the income that your spouse brings into the home when you apply for your car loan for bad credit.
Interest Rates To Expect With Bad Credit Car Loans
Be prepared for a bit of a surprise when the lender informs you about the interest rates that you will pay on a bad credit car loan. Because you have had negligent credit in the past, the lender will likely assess a higher rate of interest than he would for a borrower with good credit, and this is done to offset his risks. You can reduce the rate of interest that you will pay in one of two ways. First of all, you can apply a down payment to the purchase price of the car that you want to finance under the bad credit car loan.
Any type of down payment that you can produce will help lower your rate of interest, so even if you pay only 10% or even less down on the car, you will get a lower rate of interest and that, in turn, will cause the loan to cost less and have the bonus benefit of making your monthly payments smaller. Secondly, you can apply for the bad credit car loan with the help of a cosigner who has good credit. Having a cosigner can significantly reduce the amount of interest that you are charged on your loan.
Bad Credit Car Loans Can Improve Credit Score
Once you have been approved for your bad credit car loan, become a good steward of the credit that has been extended to you by making timely monthly payments. Many people that take out these types of bad credit car loans find that they are able to improve their credit scores, which can have the ripple effect of reducing the interest that you are charged on subsequent loans in the future, and opening the door for you to obtain other types of credit.