7 things you should be aware of when considering a bad credit car loan

If you are reading this you probably have more concerns than just finding the right auto loan. Part of your credit score reflects over-due credit card payments and outstanding balances. If you are struggling to pay off bills or other expenses, here are a few tips: keep records of your daily purchases and monthly utility bills to create a overview of how you spend money, try to cut out nonessential expenses (for instance, dining out less frequently) over time to save money for cyclical bills and necessary expenses, create a schedule of all credit card due dates for planning large purchases, and if things get really bad you may want to think about a non-profit debt solutions organization or debt consolidation firm.
If you need a car and are looking for an auto loan with bad credit, do not get discouraged. There are plenty of options out there and the key to your success (and your new car) is knowledge. Below are 7 points you should think about when shopping for a bad credit auto loan:

1. Know what you’re up against
To begin, you should be aware of who the credit bureaus are and how they work. There are three main credit bureaus: Equifax, Experian, and TransUnion. These credit bureaus consolidate your financial history (usually reported by creditors, lenders, court systems, debt collectors, and utility companies) into a 3-digit FICO score. Each bureau calculates your score differently depending on that bureau’s criteria. On average, your three scores may vary up to 10 or 15 points. You must also be aware of your overall financial situation when thinking about a car purchase. Ask yourself: Am I able to make consistent loan payments so my bad credit score does not get worse? And, will this loan payment effect my other bills and expenses?

2. Learn the system before you apply for a loan
Lenders may have different requirements for loans (for example, home ownership or a full-time job) in addition to your credit score. It is important to research a couple lending firms to get a sense of what lenders are looking for; company websites usually provide helpful information and/or sample applications.

3. Shopping around
Start out by searching different lending websites. Whether you come across a chain or independent lender, research their company values, goals, and credibility (it may come in handy during negotiations). When shopping for a lender you should be aware of their interest rates, monthly payments, and contract terms. A little research will give you an edge and a better chance of getting a fair auto loan.

4. Seek out ‘bad credit’ lenders
There are certain lending firms out there that specifically cater to borrowers with bad credit. These lenders usually make this known through their advertisements (for example, BadCreditCarloans.com or AutoCreditFinders.com). Be aware of the advertisements but do not make judgments solely based on them; there are plenty of fraudulent lenders in the world. Do not get caught up on a “too good to be true” advertisement, most of the time there are hidden terms.

5. Face-to-face contact
Try to avoid “online” lenders without a physical office space; it will ease your stress if you have an issue with your loan. Once you have settled on a specific lending firm it is a good idea to meet with a lender representative in person. By doing this, you will be able to ask questions about the process and learn about different loan products they offer. If you are nervous about approaching lenders on your own, bring a friend. Extra support and advice can go a long way if you are still “on the fence” about a specific lending firm.

6. Read the fine print
As with any contract you sign, be sure to read the entire document and ask the lender or a third party about words or phrases you do not understand. This will protect you from fluctuating interest rates (known as, “yo-yo” rates), as well as other aspects of the loan that may not be immediately clear.

7. Signing the contract
Once you sign the loan contract you are legally bound to the loan terms. It is your responsibility to know the terms and what they mean. Make sure you keep up-to-date with your payments and lastly, enjoy your new car!

written by Simon Rubin

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