Auto financing became difficult after 2008, particularly for those having low or no credit. A lot of Americans avoided upgrading their cars since they were unable to get financing or were worried about going for auto loans amid hiring freezes, layoffs or other uncertainty.
However, with improvement in the economy auto lenders in many areas of the country have expanded access to financing. But, if you have credit report errors, it could lead to a denied loan application or a loan with a higher rate of interest.
People having credit issues may go for the following options:
1. Pay cash
If you are able to save adequate money to pay in cash for a car, you could evade probable cash flow issues which might result in repossession, further damaging your credit. For a person with credit issues, availing a car loan might be another financial trap. Paying in cash may not seem realistic to all, but if it is possible, higher interest charges owing to credit issues can be avoided.
2. Take into account the length of the loan
If you need to finance a car, consider a month-wise payment amount which would not stretch you very far fiscally and balance that with the loan’s length. Auto loans of length six years or more imply that for a greater part of the loan, you could be underwater, owing more than the actual worth of the car as a result of depreciation. Moreover, you would be paying much more in interest during the life span of the loan while having lower payments per month.
3. Get a cosigner
If somebody such as a spouse or parent is willing to cosign the auto loan, it would help in boosting your charm to the lenders. Having a cosigner offers the lender various options in recovering a loan that is beyond the means of a person possessing a bad credit, so it could help significantly.
4. Shop around for financing.
Do not assume that with injured credit, your sole option is a dealer who is eager to finance you at a rate that is painfully high. Prior to entering a dealership, check out with local credit unions or banks. It is advisable to try a minimum of one credit union, particularly if you have an existing association with one. These financial cooperatives are of the member-only category, and they are smaller compared to other financial institutions. The credit unions happen to be somewhat more flexible with respect to their underwriting and are more willing to lend an ear to your story.
5. Go for a “purchase here, pay here” dealer
If every other option fails and you are in real need of a car, your last stop can be a “purchase here, pay here” dealer. These dealers basically operate independently, underwriting the loan on their own at a higher rate of interest. You are allowed to take delivery of the vehicle; however, you need to be regular in dropping off payments. It might be inconvenient to drop off a check every time, but it can be a good last resort if you have no other option.