More than 100 million Americans have a car loan or auto loan, with the average amount being $31k. At the same time, more than 60 Americans have a bad credit rating. This article explains how to buy a car with a bad credit score. Buying a car with bad credit can be a hard endeavour. Here you will find a guide on a number of ways you can get an car loan with bad credit easily without doing much.
increasing amount of car loans
The United States is one of the most important car markets in the world. In 2018, more than 5.3 million brand new cars were sold. People in this country love cars because of the convenience they bring. This has led to the increasing amount of car loans. In 2019 the total amount of active auto loans totals more than $1.3 trillion.
This article will explain a few ways you can easily buy a car with a bad credit score.
Main Ways to Own a Car
There are four main ways you can finance a new or second hand car.
- First, you simply pay the money because you have enough money to buy a car. For example because you have good investment strategies.
- Second, you can lease the car. Auto leasing is a process where you get a car, and make small monthly payments to the car owner. When your lease is up, you can then return the car to the owners and get a new lease contract and a new car. These days about three in 10 new cars are leased instead of purchased.
- Thirdly, you can buy the car from a dealership and get an auto loan. You thenn pay the car in monthly installments. After you finish paying the loan, you will own the car.
- Fourth, get a personal loan at a bank, online p2p lenders or credit union. You can use personal loan to buy the car you want, and you will own the car immediately.
Each of these methods has its own pros and cons. The pro of buying the car yourself, either with cash or a personal loan, is that the car will become yours straight after buying it. Another advantage is that if you are unable to repay the loan, you can still sell the car and use the funds to pay back the loan. You can also customize the car as you wish when you own it. If you take an auto-loan, often you will only own the car after having paid back the car.
The advantage of auto leasing is that your monthly payments often will be lower. The cons are that you can’t sell the car and you will need to return it to the leasing company. You also don’t own it and can’t customize it as you wish.
Why Credit Matters When Buying a Car
Most Americans take auto loans when buying a car. This is because most of them don’t have enough money to pay upfront. Additionally, with interest rates so low, most of them don’t have the incentive to pay upfront. As with all major purchases, credit scores matter because the financiers want to have a consistent return on their money. They don’t want a situation where the car has to be auctioned off.
However, unlike other types of purchases, auto dealerships are usually a bit flexible when giving out the auto loans. This is because if you are unable to pay back the funds, they have the right to recover their funds by selling your car. Here are a few ways you can get an auto loan with bad credit.
Try a Buy Here, Pay Here Dealer
Most large car dealers have their financing arm, which facilitates lending out money to the buyers. By doing this, they are able to own the entire purchasing ecosystem. Therefore, if there is a car dealership that offers such financing near where you live, you should not be afraid of using them. In fact, most of them will be happy to help you because you will not be using a third-party company to offer the financing. These companies will also be glad to serve you because of their ability to recover their money by repossessing the vehicle.
Try a Credit Union
A credit union is a financial organization that operates with a non-profit model. Credit unions are owned by the members and unlike banks, their intention is not to make a lot of profits. If you are a member of a credit union, you should consider talking to them to see whether they will finance your purchase. If you have a good track record with the credit union, there are chances that they will lend you money. However, you should be prepared to deposit the car title with them and to pay a higher interest rate.
Find a Second-Chance Car Loan
These are loans that are designed to give people with a bad credit a second chance. There are a number of companies that offer such loans. However, you should be prepared to pay more in form of fees and interest rates.
As you take a car loan, you need to know that it will have an impact on your future credit score. This can be in a good or negative way. If you pay back the funds on time, your credit score will improve and will ease your process of getting a loan next time. On the other hand, if you don’t pay the loan on time or if you default, your score will deteriorate and will impact your ability to access financing in future.
Crispus is a finance professional with more than a decade experience in the industry. Over the years, Crispus has written in-depth articles on leading platforms like CCN, Marketwatch, and Seeking Alpha. He also runs a Forex education and managed account company called WestEndFx.