Taking out a car loan is a great way to improve your credit score and history. Over time you can improve your score by keeping up with monthly payments. But, if you have bad credit, you may be wondering just how big of an impact an auto loan has on your credit and if it’s worth it.
How Getting a Car Loan Can Affect Your Credit
An auto loan is a type of installment loan, which is a loan that’s repaid over a specific amount of time with a set monthly payment. According to The Balance, the average monthly car payment on a new vehicle in 2017 was $479, and the average auto loan term was 68 months. It takes a lot of time and money to finance a car, and taking out an auto loan can either negatively or positively affect your credit score. The trick is to keep up with the monthly payments by paying them in full and on time. If you do this, you should see your credit score improve over time.
But if you don’t prepare a budget, or end up defaulting on the car loan, you could get yourself in trouble. Just one missed payment can leave a negative mark on your credit reports, lower your credit score, and potentially result in repossession. The good news is that if you catch it early enough, you can still make the missed monthly payment and avoid any negative marks. Thirty days is the magic number here: if you don’t pay the monthly payment and late fee before that time, your late payment usually gets reported to the credit bureaus.
Getting a Car Loan with Bad Credit
When you have bad credit, you aren’t be able to just walk into any dealership, pick out a car, and finance it. Instead, you typically need to find a special finance dealer that knows how to handle bad credit financing. Make sure you come with the required documents needed to finance a subprime auto loan and do some research on the type of vehicle you need. Typically, the better prepared you are, the smoother the financing process goes.
When you finance through a special finance dealership, you more than likely won’t get the car of your dreams, and your interest rate will be higher than average. So, make sure you research cost-friendly used vehicles that fit your budget. At the same time, don’t let this discourage you, for once your credit improves you can typically refinance for a better rate. It can take some time, but it's worth it in the end.
Start Rebuilding Your Credit Today
If you’re ready to start rebuilding your credit by taking out a car loan, let Auto Credit Express help out. We work with a nationwide network of dealers that have the lending resources available to help people with various credit issues. What are you waiting for? Get started today by filling out our fast, easy, and free auto loan request form!
