Financing a vehicle will a poor credit history has a downside. Even though several lending institutions will approve auto loans to persons with less-than-perfect credit ratings, the fees and interest rate on the loans are outrageous. In turn, the borrower will likely pay a lot more for the vehicle. On the flip side, reliable transportation is a necessity. Some cities have substandard public transportation systems, and our busy lives justify the convenience of a personal vehicle. Fortunately, there are ways to improve the chances of getting bad credit auto financing with a affordable interest rate.
- Begin Re-Establishing Credit History – Improving your credit rating will not happen overnight. Nonetheless, the sooner you begin taking the necessary step to boost a low credit score, the sooner you can begin taking advantage of reasonable interest rates on loans, credit cards, and so forth. Apply for a credit card intended for people with bad credit. If you already have a few credit card accounts, start making regular payments. Even if you have too many debts, submitting on-time payments is usually satisfactory for a fair credit rating. Little by little, credit score will increase once a routine of regular payments is established.
- Make a Large Down Payment – Down payments are not required for vehicle financing – even if a borrower has bad credit. However, to acquire a lower rate on a bad credit auto loan, the lender may require a sizeable down payment. Typically down payments are 10 percent of the purchase price. Bad credit applicants may need a higher down payment, perhaps 20 – 30 percent of the purchase price.
- Co-Borrowers – Financing a vehicle with a co-signer can be dangerous – especially for the person with an establish credit history. However, if a borrower has no credit history or a bad credit history, a co-signer can improve the chances of financing the vehicle at a low rate. Most co-borrower relationships are parent-child or husband-wife. The primary borrower is responsible for the monthly payments. On the other hand, if the primary borrower chooses to stop making payments, the co-signer is held accountable. For this reason, co-borrower arrangements are risky.
• Refinance Option – Even if a person with bad credit finances a vehicle at a high interest rate, there is always the option of refinancing the auto loan for a lower rate. Rebuilding credit takes time. Furthermore, once a good payment history with the auto lender is reported on credit reports, the borrowers score is likely to increase. Within time, he or she may be eligible for a lower rate, which may lower monthly payments or shorten the loan term.