It’s harder to get a really good loan when you have poor credit. It’s just a fact that lenders would rather give their money to borrowers with strong credit backgrounds. From their perspective, these people are more likely to pay them back. Getting a new car loan can be particularly difficult when you have bad credit.
This is partially due to the nature of buying a new car. Not only are they more expensive, they depreciate more quickly than older ones. In fact, new cars on average lose about 10 percent of their value the second they leave the dealership. They typically lose an additional 10 percent after the first year of ownership. But this can be even more severe in same cases. For this reason, lenders are extremely hesitant to offer money for people with bad credit to buy a new car. If that person doesn’t pay them back, the asset leftover will be much less valuable than the original one.
While it’s not impossible, there are some important things to consider when buying a new car when you have poor credit.
Make Sure You Can Afford the Vehicle
It won’t benefit you to take out a loan that you can’t really afford. Maybe this has happened to you at some point in your life. You really needed or wanted something, used debt in order to finance it, then were unable to pay for it. This is one of the top reasons why people end up with bad credit in the first place. If this sounds like you, consider whether going with a new car is really the best option. There are a few factors that can make them harder to pay for than used ones. First, they’re more expensive; so you’ll have to pay back more. The average new car costs about $35,000. That’s a substantial amount of money, especially with higher interest rates. And as already mentioned, they depreciate faster than used cars. So you’ll essentially be paying a loan on imaginary value.
Financial experts have competing ideas on how much is a reasonable amount to spend on a vehicle. One rule of thumb is that you shouldn’t buy a car that costs more than half your yearly income. Following this advice, you should only buy that average new car at $35,000 if you make at least $70,000 in salary. Ensure you’re actually able to pay back your loan. Otherwise, your credit will be hurt even more.
Look Over the Loan Carefully
If you’re really intent on a particular vehicle, you need to do your due diligence in looking over the loan. Not all lenders are going to be honest or give you the best possible rate. People looking for poor-credit car loans should do a bit of shopping around. Comparing loans from a few different lenders will help you end up with a better deal. You should also look out for fees and other expenses build into the loan. Some lenders, especially banks, will make you pay if you’re late for a payment. Getting a loan that doesn’t work with your financial situation can really hurt you in the long run. Working with a company that specializes in subprime auto loan could work to your benefit, as they understand people have a wide variety of credit standings.
Consider Other Options
You probably really need a car if you’re trying to get one despite your poor credit. You’re not alone. About 107 million people in the United States are currently paying off an auto loan. It’s just something that people need in order to get around. However, buying a new car isn’t necessary. You should definitely consider purchasing a used vehicle if you have poor credit. The cost will be lower to you if you go this route. Plus, it will probably be easier to get a loan. People who consistently pay their loans will improve their credit. And if you do this, you can probably then refinance you loan for a better rate. Try to think about your future, and not just what you want today.
Nothing is easier when you have poor credit—least of all borrowing money. Getting a loan for a new car can be difficult when you don’t have the best credit history. Consider all these things before you decide to purchase a new car.