Bad Credit Car Financing: What You Need to Know

car loanIf you have poor credit, you may assume that getting a loan for a new car is out of the question. After all, why would a lender give a new car loan to a person with a poor financial history? Thankfully, you may be more eligible for a new car loan than you think.

While strict loan requirements did once keep people with poor credit from getting the car financing that they needed, lenders have more recently relaxed their standards, allowing more people to qualify for loans on both new and used cars. Even if you have poor credit or no credit at all, there are lenders out there who want to work with you.

Why Do Car Dealerships Offer Bad Credit Car Financing?

It isn’t uncommon for car dealerships to offer people with poor or no credit history deals that don’t earn the dealership any money. Why would they do this? The answer is simple: They want to turn you and your friends and family into repeat customers. They are hoping that you will return to the dealership the next time that you need a car or car repairs, and that you will tell everyone you know to do the same. While the dealership may not make much money off of their first transaction with you, subsequent transactions may prove to be very profitable.

Tips for Getting the Best Terms

One thing you need to be aware of when shopping for bad credit car financing, however, is that while it is possible to qualify, it is highly unlikely that you will get the dealership’s best rates. Therefore, you need to be more prepared than ever if you want terms that are fair and manageable. Here are five tips for getting a good rate.

1. Know Your Score

Don’t take the company’s word for it that your score is poor. Look up your score yourself so you will know exactly what number you are dealing with.

2. Shop Around

Just because you cannot get qualified at one dealership doesn’t mean you can’t at another. Shop around to find the best rates and conditions. A friend of mine with poor credit once used Wells Fargo after talking with BofA and getting denied. I’ve also heard Money Barn Finance offers great deals. Don’t get discouraged when one says no because eventually you’ll get a ‘yes’.

3. Raise Your Score if You Can

If your score is preventing you from getting favorable terms, raise it. Pay off any overdue bills and lower your debt a little if you can.

4. Chose an Affordable Car

Don’t risk ruining your credit in the future by choosing a car you can’t afford. Choose an affordable car so you can get better terms and repair your credit.

5. Understand Your Terms

Before you sign any paperwork, know what you are agreeing to. Don’t just consider the monthly payment. Look at the cost over the life of the loan as well as any fees and conditions.

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