These loans tend to include higher interest rates and stringent payment rules for the borrower. It can be easier to get a bad credit car loan than some personal loans though. Should you default on the loan, the lender can claim the car back, whereas with a personal loan, the lender is left with his or her hand out.
How do you get a bad credit loan? First, you have to apply for one. Lenders who specialize in bad credit loans often have different options for people dealing with bad credit or have just come out of bankruptcy. A down payment will most likely be required or, alternatively, a trade-in of a vehicle that is already paid off or still has positive equity. Remember, these bad credut car loan lenders are interested in profits and are looking to minimize the risk they are taking with you. The more money you can provide up front, the more likely you will be approved for the loan.
Lenders will also need to know about other factors that might influence your ability to pay back the loan, such as your debt-to-income ration, your work history, and proof of residence. They may ask for personal references and pay stubs so they can verify your trustworthiness and income. Copies of your car insurance and drivers license may also be requested. If your credit is particularly bad, you may have to find someone to co-sign the loan with you. When you speak to the lender, be honest about what you can afford and how much you can put down. Together you can come to an amount that you’re both satisfied with.
If you do get approved, and chances are you will, be prepared to pay back the loan at a high interest rate. This is a consequence of having poor credit. Don’t worry too much though. Many lenders can put you in a program that lets you re-finance you loan at a lower interest rate after a one or two-year period. Once you start building up a history of good payments, your credit will improve.
If the scenerio above sounds familiar and you need a car, a bad credit car loan might be one way to help you get started on the road to good credit.