Three Things to Know About Bad Credit Auto Loans

When you apply for a loan to buy a new car, the lender will run your credit to determine if you deserve a loan, how much you can borrow and what interest rate to charge on that loan. Lenders base these factors on your credit score, which can range from 300 to 800 or higher. A score of 500 or less means that you have bad credit. Before applying for a bad credit auto loan, you need to know a few things about these loans.

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What You Need

If you have bad credit, you may need to provide the lender with more information to get the loan that you need. These lenders usually will not loan money to you unless you can prove that you have a job or some guaranteed source of income. You may need to bring home a certain amount or have a certain amount leftover after paying your bills. A guaranteed source of income can include a business that you own or payments that you get from the government or a former spouse. Some lenders will require that you have a checking account in good order too.

High Interest Rates

Some of these loans have a reputation of being predatory loans because the lenders take advantage of borrowers, but not all bad credit loans are like this. You can often use an online estimation tool or some type of calculator to see the estimated size of your monthly payments. Some companies give you the chance to start the application process online too and find out if you qualify for a loan. This lets you see the interest rate charged on your loan and find out whether it is a good rate.

Improve Your Credit

You may not realize it, but some car loans for people with bad credit can actually help improve your credit. Any number of factors can lead to a low credit score such as an illness that left you without money for an extended period of time or a divorce that led to you filing for bankruptcy. Some lenders who specialize in bad credit loans will report the payments that you make on time to the credit reporting bureaus, which will cause your credit score to slowly rise. Knowing more about these loans can help you decide whether to apply for one because of your credit history.