Financial experts recommend that people should maintain a good credit score at all times, especially if they are planning to get a loan. However, it is possible to receive an auto loan even if one has a bad credit score. You can always improve your credit score by taking a loan and paying it back as per the schedule.
Lenders will understandably be a bit wary while dealing with people who have bad credit scores. However, some of them are willing to give you a chance to show them that you are trustworthy. The best way to gain their trust is to make sure that you do not pay your installments late, or even worse, become a defaulter.
If you have any assets that you can put up as collateral, go ahead and do so. This collateral gives the lenders a sense of security and gives you a much-needed boost towards getting that loan. You might even get a loan with better terms based on the collateral that you put up against your loan.
Lenders will always look at your credit score as a benchmark to assess the risk of giving you a loan. Credit scores of 500 and below are considered to be bad, and lenders may hesitate to give borrowers a car loan. Good credit scores are figures of 720 and above. Some lenders may not even consider a score of 620 and below.
Still, it is possible to get a car loan even with bad credit since the vehicle is something that the lender can repossess if you do not pay your dues on time. Usually, it is easier to get this type of loan through the car agency as it is easier for them to repossess the vehicle.
If you’re looking for a car loan when you have a bad credit score, you should remember that lenders are obligated to approve loans at high interest rates based on FICO® scores. FICO® scores of 550 to 619 are at 14.4% while people with scores lower than 549 get an interest rate of 17.9%.
Always keep in mind your financial obligations while you buy your car. Do not put yourself in a corner by splurging on a car that you cannot afford. This loan will only become burdensome in such a situation, and it may also worsen your credit score.
With an obligatory down payment, a cheaper vehicle lowers your principal amount. Thus, this is good for your payment plan as a whole.