Bad credit shouldn’t keep you from getting a loan. Here’s how you can get a used car loan regardless of your credit score.
Keyword(s): used car loan
Getting a used car loan with bad credit can be challenging. Fortunately, there are ways to secure financing even with a poor credit score.
Did you know that nearly 24 percent of Canadians have a bad credit score? Of that 24 percent, roughly 3 percent belong to the extreme risk category.
Therefore, if you have bad credit you are not alone. Many people are struggling with poor credit scores, yet still securing financing for a used car. Read on to learn how to get a used car loan with bad credit.
Download Your Credit Report
Do not automatically assume that you have bad credit. There is a difference between poor credit and extreme risk.
More specifically, anything under a 520 credit score is considered extreme risk. You may have less negotiating leverage with a credit score this low. This level of credit, however, represents just 3 percent of all Canadians.
Credit scores ranging from 520-680 are considered poor. However, the likelihood of securing credit is much better.
Do Not Settle For Bad Terms
Many falsely assume that people with bad credit are at the mercy of the lender. This is not necessarily true and you should set your sights on the best deal possible.
There are a few key terms when securing auto financing. The first is the duration of the loan. Used car loans typically range from 3 to 6 years.
It is a common tactic for car dealerships to extend the length of the loan in order to reduce the monthly payment. While this seems beneficial, it could be a ploy to pay more over the life of the loan.
For this reason, loan experts recommend that borrowers focus on the sales price of the vehicle during negotiations. Many borrowers make the mistake of telling the car salesman how much they want to pay per month.
Then, the car salesman keeps the sticker price and extends the loan term to reduce the payment. To combat this, decide what loan term you want before negotiation starts.
Another key loan term is the interest rate. The lower the interest rate, the lower your monthly payment will be. Besides the sales price of the car, this is the most important item to negotiate.
Save Up a Down Payment
A down payment is even more important for those with poor credit. First, it reduces the principal amount and lowers the monthly payment of the used car.
Making a down payment may also secure a lower interest rate. It also shows the lender that you are serious about meeting your loan obligations.
Carefully Read the Loan Agreement
You should take time to carefully read the loan agreement. By doing so, you make sure the terms match what you were promised by the auto lender.
In addition, you need to make sure there are no add-ons or sketchy conditions. The car dealership often tries to sign you up for additional products and services. However, this will increase your monthly payment and may exceed your budget.
Time to Apply For a Used Car Loan
Now that you understand the fundamentals, it is time to apply for your used car loan. By paying this loan on-time each month, you will actually repair your poor credit.
Saving for a down payment and downloading your credit report will help during the application process. If you need a used car, please contact us for assistance.