Bad credit is really poor credit scoring. A person could have bad credit and therefore considered high risk by financial institutions for reasons such as lack of or late payment on bills, credit cards, loans, mortgages, and the like. For most people, bad credit equates to the inability to obtain loans at a good interest rate. Considering that, should someone with bad credit apply for a car loan?
Analyze the Implications
Having bad credit creates several negative results:
-First, rejection on a car loan application.
-Secondly, bad credit allows the lender to raise the interest rate he charges.
-A third negative result is the price of the car itself could be increased from normal by the seller.
Simply receiving a loan from a lender that specializes in bad credit lending does not mean that all is well. Naturally, you will be required to pay back the full amount of your loan plus all interest that is charged to it. For example, someone with an average credit rating could get financing for a vehicle with a moderately low interest rate, such as 10%, on a loan with a seven year term. Someone with a poor credit score, however, would be able to receive a similar loan with an interest rate that could be anywhere between 5% and 26%.
An individual with bad credit will also have to accept a shorter term as well, perhaps two to four years. They might also be made to pay a large down payment, even 50% of the total amount of their loan.
Analyze the Solution
Clearly, financing a car with a bad credit score is a bad idea. What if need to buy a car within the next several days, but your current credit score is not good? You should ask yourself a couple of important questions. Would you really be able to pay a high interest rate? Are you willing and able to use a large part of your monthly salary on a car payment?
Does this all mean that you simply cannot get a car loan if your credit score is bad? No, there is in fact a solution.
By just not thinking about getting financing for a vehicle while you have bad credit, you will avoid the negative effects that can be produced. A first step is doing what you can to make your credit score better. Make sure that your payments are in on time. Be more efficient with your finances. And if you notice that your credit report has irregularities, don’t take time to inform it.
Keep in mind that improving your credit score does not happen overnight. It could require a few months of effort. Considering this, you will be able to postpone your car purchase. But if you stay determined to change your credit from good to bad, in a few short months you will feel quite satisfied driving your new vehicle.