Getting a good car loan might be out of the question when you have poor credit and a history of bankruptcies, foreclosures, or repossessions. If you need a car, though, you might wonder if you should go ahead and take a bad car loan. While you might not have a lot of car loan options, taking a bad car loan is not always a bad idea. In fact, it might be a good idea. Here are several things to consider if this is the position you are in right now.
Factors that Lenders Consider
Your credit score is the main factor that lenders consider when issuing auto loans. Your credit score might disqualify you from even getting a car loan, or it might make it easy for you to get one. When you have bad credit, lenders might hesitate in issuing you a loan, as it might be too risky for them. While your credit is the main factor that lenders consider, lenders might also consider other things, such as your downpayment amount, income, and financial situation. Based on these things, a lender will tell you if you qualify. If you do, you might find out that the terms are not the best.
Features of a Bad Auto Loan
A bad car loan is one that has a high-interest rate. The interest rate affects your payment amount and the total cost of the loan. If you get approved for a high-interest rate loan, you might have to pay a lot of interest, but you will have a way to purchase a car when you need one.
Reasons To Get a Bad Auto Loan
Even if you have to get a high-interest rate car loan, it might still be a good idea. First, when you get a loan, you can use it to rebuild your credit. You will make payments on the car loan every month, and each payment helps you build a positive repayment history. Your repayment history on your credit report is a factor that helps you increase your score.
Secondly, you might not be stuck with a high-interest rate loan forever. The loan might only last a few years. If it lasts long enough, you can refinance it. Suppose you have good credit after a year or two. At that point, you could refinance the loan for a lower rate. If you have questions about auto loans, talk to a lender today.