Ways to purchase a car with a bad credit history

A bad credit history calls your credibility into question, and therefore, the chances of disapprobation are quite high, but be that as it may, it does not preclude you from submitting your application. A couple of direct lenders and car dealers do not hesitate to entertain applications from subprime borrowers. However, they follow stricter approval criteria. Caution is enjoined when applying for car finance with bad credit from a direct lender.

A poor credit rating reflects your non-commitment or struggle with payments. Lenders would assume you have a propensity to make a default and, therefore, be indisposed to approve a large amount of money. Car loans require upfront payment, which must be at least 10% of the total value of the car, but this might become double or even more in case of an abysmal credit report.

Direct lenders only provide personal loans to purchase a car. It depends on their policy, what credit score, and the size of the down payment they need to approbate your application, but they are much more affordable than dealership financing. Before you enter the market to purchase a car, make sure to be enlightened about all available options.

Ways to buy a car with a poor credit rating

Here are some ways to purchase a car with a poor credit score:

• Determine your affordability

First and foremost, you must know how much money you can pay for your car. Financing means being tied to a fixed monthly instalment for an extended period. On top of that, you are to pay maintenance, insurance, fuel, and other charges. Understand how your less-than-perfect credit rating will affect the total cost of the debt. A deal is affordable so long as your monthly budget has wiggle room to meet all car-related expenses without compromising on essential expenses.

• Identify the purpose of using your car

Choosing the right car is paramount, and you can possibly decide by knowing how you will use the car. Having known the purpose of using your car will make it much easier for you to choose the right model. It will help save you a lot of money in the long run.

• For instance, if you own a family, you might need a four-door small car with a boot, but if you are single, a two-door car could come in handy.
• Fuel efficiency is another parameter to decide on a model of car. Of course, it is the most important factor when you are always on excursions. However, if you travel shorter distances and not so frequently, it should not bother you much.
• You will need a truck if you need to load it. This is commonly suitable for business needs.

While choosing the model, do some research online, ask around people, and inquire car dealers about all the tiny details. Weigh up the upsides and downsides before making a decision.

• Consider owning a used car

A bad credit history results in a larger down payment. Despite a reduced loan value, you are charged high interest rates. Not to mention, the burden of debt will be way too much on your pocket. In order to ease payments, you should consider buying a secondhand car.

They are available from car dealers; however, you need to confirm what models are available with them beforehand. Do online research and ask around your neighbour if somebody is up for sale.

• Review lending options

Car loans are particularly available from direct lenders, banks, credit unions, and car dealers. First, you should contact your bank to see if they could sign off on your application. Banks are strict about good credit history, but sometimes they accept applications despite a bad credit score. The cost of the loan will certainly be high.

Direct lenders also provide auto loans, but they are deemed to be more flexible than banks. It is likely that you receive approval from your direct lenders but are refused by your bank. Credit unions may also come in handy, but they restrict the loan amount. Compare the offering amount, interest rates, and repayment terms from all of them.

Dealership financing is different in that it includes hire purchase and personal contract purchase. Hire purchase works like personal loans from direct lenders. You receive the title at the end of the car, but personal contract purchase is quite exorbitant. It seems like leasing a car, but you actually pay the actual value of the car.

Contrary to other financing options, monthly instalments go towards the depreciation cost. To own the car, you will have to pay off the balloon payment at the end of the contract.

• Keep your credit score in good condition

Though there is the likelihood of being approved for a car loan despite a bad credit rating, it does not mean that you will rebuff the need to maintain a good credit score. You should always try to have a score more than the bare minimum your lender accepts. This will not only improve your chances of being approved, but it will also help you avail yourself of lower interest rates. Here are a few things that you must focus on to ameliorate your chances of being accepted:

• Try to avoid having a payday loan at the time of applying for a car loan. Having an outstanding small emergency loan such as a 10-minute loan with no credit check, will diminish your approval rate.
• Make sure that you have paid off your credit card balance. If you have a predisposition to carry the balance, it should not be more than 30%. The lower, the better.
• It must have been at least six months since you have been living debt-free.

The final word

Purchasing a car with a bad credit rating is certainly challenging. Financial experts normally suggest that you improve your credit rating before applying for a car loan. It will help you qualify for lower interest rates.

Apart from that, understand the purpose of using your car, and if possible, choose a second-hand car. It will help you save a lot of money on interest payments in the long run.