Have A Bad Credit Score? 3 Things To Know About Getting A Car Loan
If you have a low credit score or bad credit, auto loans are going to work a little differently for you than if you had a high credit score. Basically, the further you fall from a perfect credit score, the more challenging it can be to secure an auto loan.
Longer Loan Terms
When you have a bad credit score, you may find that you are offered longer loan terms. This could mean that your monthly payments are more affordable; however, longer loan terms do cost you in the long run. With a longer loan term, you will end up paying more in interest over the life of your car loan. Depending on the age of your car, with a longer car loan, you could end up owing more on the vehicle than it is worth. Additionally, a longer car loan just gives you more time to default or make a mistake that would result in your vehicle being taken away from you.
Higher Interest Rates
Next, you are going to encounter higher interest rates. You know those great interest rates and deals you hear on the radio, like "six months, no interest" or only "1.5% APR"? Well, those interest rates are designed for individuals with the highest credit scores. Those advertised deals, however, are designed to get people of all credit scores through the door.
Don't expect to be offered such a high interest rate, though. You are more than likely going to face a much higher interest rate than the deals that you hear advertised if you have a low credit score. A higher interest rate will allow the lender to make a great amount of money on the loan. As the lender sees you are a higher risk, they try to mitigate that risk by making more money off of you.
Larger Down Payments
Finally, when you have a bad credit score, lenders oftentimes ask for a larger downpayment. It may make more sense to ask someone with a good credit score for a larger down payment, as they are more likely to have the money to pay it.
However, that is exactly the point. The lender is trying to see if you are good at managing your funds and if you are capable of saving money, despite having a bad credit score. Also, asking for a larger down payment can help lower the amount of money that the lender has to give you, thus helping to reduce the risk that they are taking with your loan.
You can still get assistance purchasing a vehicle if you have a lower credit score; however, be prepared to be asked for more money upfront and to face higher interest rates. If you take the entire life of the loan to pay it off, you'll end up paying more for the vehicle than someone who has a better credit score.