Buying a car with a low credit score?
Having bad credit means that sometime in your past, possibly as far back as seven or ten years, you have had missed or late loan payments, repossessed property or cars, or have declared bankruptcy. You may also have an excessive number of credit cards with high balances. These factors are included in your credit history reports that come from three credit reporting agencies: Transunion, Experian, and Equifax.
Your entire credit history is summarized in a single number, called your credit score.
Your credit score determines if you’ll get approved for a car loan, how much you’ll in interest, how much down payment you’ll pay, and even how much you’ll pay for auto insurance.
Credit score range from 300 to 850. A credit score less than about 680 is generally considered by most lenders to be “poor” or subprime credit. What’s your FICO score? Find out now when you check your credit report for $1 at Experian.com!
How Bad Credit Affects You
Very few things in life can have a more devastating effect on your lifestyle than a poor credit score. A low credit score can cost you hundreds or even thousands of dollars per month.
Most prime credit cards are entirely out of reach to consumers with bad credit. And the few credit cards that are available to them (known as “sub-prime” cards) typically require exorbitant setup fees or recurring monthly fees, offer very low credit lines, often require cash deposits, and in most cases do not even report your positive credit activity to the credit bureaus.
If you are making payments on a car, you are probably paying between $5,000 and $9,000 more just for having bad credit. This added interest shows up every month in a higher payment. Take a look.
|$20,000 car paid over 5 years:|
|CREDIT STATUS||RATE||PAYMENT||COST OF BAD CREDIT|
What to do
Of course, the most important thing to do is start working on repairing your credit. However, you shouldn’t expect instant results. Meantime, you may have accept loan rejections, or having to pay high interest rates and make large down payments until your credit score gets better.
Getting a family member to co-sign with you on your car loan is the most common way to circumvent some of the problems of bad credit. A co-signer is not a co-borrower as a husband and wife might be. The co-signer is only there to make payments if you stop making payments yourself. The loan is yours and remains yours, even if the co-signer has to pay. Getting a co-signer is a great way to avoid some of the problems of poor credit, and gives you some time to build your credit back by making your payments on time.
If you can’t find a co-signer, you can look at buying your car from a dealer who specializes in working with people who have bad credit, known as “buy here pay here” dealers who often sell overpriced vehicles at very high loan interest rates.
Also check with a reputable online car loan company such as CarsDirect that provides car loans to people with no credit or poor credit.
Repairing Credit Yourself
The Fair Credit Reporting Act gives you the right to dispute any and all items on your credit reports that you feel classify as inaccurate, unverifiable, or misleading. If the bureaus can not verify that the information on your reports is indeed correct, then those items must be deleted.
Disputing items on your credit report is easy. Getting results from the credit bureaus is amazingly difficult, complex, and infuriating. It is not a coincidence that the Federal Trade Commission receives more complaints against credit bureaus than any other type of business. Remember, the credit bureaus are primarily interested in protecting their profits. Investigating your challenge consumes these profits. Short of sparking a mass number of lawsuits, the credit bureaus seem to do everything in their power to discourage consumers from making progress in their restoration efforts.
Restoring your own credit is like repairing your own transmission or representing yourself a court of law; it is possible, but you must decide if you are willing to take the time and assume the risks of doing it yourself. Most people get a professional company or attorney to help them.
Buying a car with bad credit is possible but your choices may be limited. You could be refused if you credit is bad enough, or you could be required to pay a high interest rate and/or make a high down payment. Getting a co-signer is often the right solution. It not only allows you to get the loan at a good interest rate, but also helps you improve your credit score.