You applied for an auto loan and found out that you have been denied for the loan. The Bank’s loan manager tells you that the reason you did not get the loan was that your credit score was too low. Your credit score, he explained, placed you in the sub-prime category.
You are dumbstruck and disappointed. You wonder whether there is an alternative for getting a car loan at a decent interest rate with a bad credit score . Do not be dismayed, there are ways to get around this, but first you need to understand where you stand as a subprime borrower.
With a sub prime status you are a borrower with bad credit, normally with a credit score below 600 for those seeking an auto loan.
For more information about how credit scores are formed and affected please research the 5 Factors That Make Up Your FICO Score.
There are many banks, credit unions and car dealers around the country and in your community that are willing to help those with bad credit get an auto loan regardless of their credit history.
However, you need to understand that the interest rate for subprime borrowers can be quite high. To alleviate the possibility of a high interest rate here are some things you can do:
1) Get a copy of your credit report. According to the Fair and Accurate Credit Transaction ACT, every American is entitled to a free credit report once a year. Log on to annualcreditreport.com and get a copy of your report. This report will be from all free credit reporting agencies: Trans Union, Experian and Equifax.
Comb through it for any mistakes and call your lenders to correct those mistakes immediately. Contact the credit agencies and inform them of the error. Then look at the items that contributed to a low score. Usually it would be related to debt that you owe and your punctuality in making monthly payments. Try paying up on your debts and make timely monthly payments to improve your credit score.
As much as 35 percent of your FICO score is based on your payment history another 30 percent is based on your ability to make payments on time. Having a true picture of your credit score helps you to know your exact situation and arm you with information for the negotiation process.
2) Do not take the dealers word for it. The dealer is there to make a profit and the car salesman will use all the techniques in the book to get the most out of the deal. Remember, he works on commission.
The best situation is for you to get pre-approved for the loan before going to the dealer, that way you have negotiating power. Speaking of negotiating power, find out the dealer rebates, allowances, discounts, collections, holdbacks, incentives for carryover and other incentives the dealer receives from the auto maker.
Apart from speaking to the salesman speak to the account manager who is usually more keenly aware of the discount that are available.
3) Shop for deals particularly online. There are many auto dealers across the 50 states that have deals on a daily basis. Some receive incentives from manufacturers to quickly move cars out of the car lot. This could translate to hundreds, if not thousands of dollars in savings.
Also, apply for loans online. Companies like Lending Tree and CarBargains.com will let lenders compete for your business. Filling out an auto loan application submitted on a CarDownLoan.com that will be sent to many auto financing lenders in your community is another option. Then you can select the one who offers the lowest interest rate.
4) Try to get an auto loan with a short loan term. That way you pay quickly and the amount of interest you pay will be less. By accepting a short loan term you will avoid the risk of being upside down on your car loan. Second, you can pay it quickly and improve your credit score further
Want to find out more about Bad credit car loans, then visit Earnest Younge’s site on how to choose the best Subprime bad credit car loan for your needs.
