Should I get a bad credit car loan to reestablish my credit?
by Steve Cypher on Thursday, April 24th, 2008When it comes to reestablishing your car credit, you may have to “bite the bullet” and take out a subprime loan.
A short history of subprime car loans
Prior to the 1990’s, most car buyers with bad credit either had to take the bus to work or were forced to deal with buy here pay here or tote the note dealers. And while public transportation works if you live in a city, it isn’t a choice if you live in the suburbs and rural areas.
For those customers who wanted to rebuild their credit, the buy here pay here dealers were also a dead end, since most of them don’t report payment histories to the three major credit bureaus.
Beginning in the early 1990’s, a number of lenders – both public and private – began to enter the subprime auto lending arena. The upside to this was the fact that most of them reported to the credit bureaus, enabling customers to reestablish their automotive credit. For many of these customers, it meant a step towards being able to once again deal with a prime lender. The downside, and there is one, is that the interest rates charged by these subprime lenders can range from a few percentage points above a “standard” loan, all the way up to the mid to upper 20% range.
Know your credit score before you begin shopping
The first thing that you should always do before applying for credit for anything is to get a free copy of your credit report. It also would help if you paid to get your FICO score. Federal law stipulates that you are entitled to one free credit report per year from each of the three credit bureaus – Equifax, Experian and TransUnion. You are also entitled to a free credit report outside of the one per year if you have been turned down for credit based on information from any of the three bureaus.
Once you receive your report and your score, review the information and make sure that it is accurate. If not, there are ways that you can have the information corrected. These procedures are outlined on the individual web sites of the credit bureaus.
If your FICO score is below 620, this typically means that you are in the less than desirable pool of subprime credit customers. At this point, you have a choice. You can try and raise your score above 620 and then buy a car, or you can apply for a bad credit car loan and raise your score by making all of your monthly payments on time.
If you can afford the luxury of waiting to apply for a car loan, there are other ways that you can raise your credit score:
1. Pay your bills on time. This will prevent any further delinquencies on your credit report.
2. Begin paying off your delinquencies. Start with the small ones and work up to the larger ones.
3. Apply for a secured credit card or a high risk unsecured credit card and pay off the balance every month or keep the balance to within 30% of your credit line.
Even with bad credit you may have choices
If you don’t have a choice and have to have a car now, the good news is you don’t have to settle for an old beater. While a subprime car loan is not designed to get you your dream car, there are many low mileage high quality used cars that will qualify for these programs. Many subprime lenders will even finance new cars.
Here at Auto Credit Express we want to help you
Knowing that you have bad credit and need a car can be daunting. Finding the right dealer can make the task even harder. At Auto Credit Express, we are experts in bad credit car loans. Our nationwide network of affiliated dealers are experts in helping customers with bad credit reestablish themselves while driving a new or low mileage quality used car. For more information, visit our website at www.autocreditexpress.com.
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