Repairing Credit with a High Risk Car Loanby Steve Cypher on Friday, December 7th, 2012
Car buyers who have experienced credit problems are sometimes unaware that there is a financing option that will allow them to drive a new or low-mileage used car while repairing their damaged credit at the same time.
At Auto Credit Express we’re familiar with this because for over twenty years we’ve been helping car buyers with poor credit find franchised new car dealers that can offer them their best opportunity for approved auto loans. In fact, by checking out the resource section of our web site buyers can find the answers to questions ranging from repossession to today’s topic, car financing options that can result in improved credit scores.
If you have bad credit you may have come across one or more articles – some with creative grammar and spelling – describing how you can buy a car even if your credit is, shall we say, less than perfect. But the fact is there really are lenders out there who are willing to take a chance on car buyers with low FICO scores – in particular those people who at some point in time may have had better credit.
The odds of this happening are especially good if one or two life events (such as a job loss or medical problem) can be identified that might’ve led to their current credit situation.
But before jumping in with both feet there are a number of things that need to be considered:
• The first auto loan that follows a drop in FICO scores will be at a higher (sometimes much higher) interest rate than many consumers are accustomed to.
• Provided each car payment is made on time (while keeping up with all other bills), most car buyers will qualify for a better interest rate the next time around.
• As with any auto loan, negative equity can prevent refinancing or trading in the vehicle until anywhere from half to two-thirds of the way through the loan (i.e. 30 to 40 months for a 60 month loan).
• Failure to make timely loan payments will result in credit scores dropping even further.
Since re-establishing car credit is the priority, we suggest following these tips:
• Pick out an inexpensive small to midsize new or used car
• If possible, choose a loan term of 48 months or less
• Given a vehicle choice, look up their history of reliability, run vehicle history reports, check with your insurance company to see which is cheaper to insure and pay to have the one you plan on buying physically inspected by a certified master mechanic as well as a body and frame specialist.
Why should you do all this?
By financing an inexpensive vehicle for 36 to 48 months, you’ll not only save money, you should also be able to trade out of it anywhere from 18 to 30 months later. Financing something more expensive for a longer term means that even once your credit scores have improved, it will be difficult to trade it in or refinance it because of the longer negative equity period.
Finally having it fully inspected means you won’t be buying something that could cost you thousands of dollars in repair bills as well as being worth less at trade in time because it has hidden damage.
As we see it
Poor credit car loans can be a good thing if they’re done right.
One other thing that’s good to know: Auto Credit Express matches up applicants that have credit problems with dealers that can offer them their best chance at getting approved for auto loans.
So if you’re ready to reestablish your auto credit, you can start now by filling out our online car loans application.