Have bad credit but need a car loan? Here’s what you need to know

*This is a collaborative guest post

Sometimes unfortunate things happen to good people. Whether it’s bankruptcy, a failed
business, a death in the family, divorce, or illness, all of these hapless circumstances typically
lead to a bit of depression, some anxiety, and the dreaded bad credit.

While most people won’t think any less of you when in a financial rut, lenders are a whole
different story. Most of the known reputable ones will think twice than to lend to someone who is
a ‘higher risk borrower’. So what do you do when you need to get a car loan? The good news is
that having a bad credit rating does’t mean you can never get a car again. All it takes is
knowing the right institutions to go to and the right steps in going about getting a bad credit car
loan.

Regular Car Loan VS Bad Credit Car Loan. What’s the Difference?

Anyone who’s attempted to acquire a vehicle through a dealer or financial institution pretty much
knows how they work, so how is getting a car with bad credit any different? The first thing you
need to know is that you’ll probably end up with a higher interest rate compared to someone
getting a car with good credit. As mentioned before you are considered as a higher risk
borrower. The good news is that companies that deal with people with bad credit scores
typically have more flexible payment packages and are a little more considerate with making
arrangements.

The second thing you need to know is that some bad credit car financing institutions may
require more security from you, like a guarantor or co-borrower. The good news in getting car
finance with a co-borrower is that their assets gets combined with yours during the qualification
process. This means that you have higher chances of not only getting a car loan, but also (and
more importantly) getting better interest rates. So if you have a parent, partner, or roommate
where mutual trust has been established, you might want to consider putting them in the
application as a co-borrower. Of course, with their consent.

Questions you need to ask bad credit car loan companies

Even in a digital age, a big-ticket purchase like a car is completely different from shopping for
shoes online. The stakes are too high and the contracts are too long for you to not do your due
diligence. So before signing any contract, here are some things you need to ask lenders:

What is the interest rate?

This gets a little tricky as some companies may not answer the question directly. This is the
importance of actually shopping around before buying. Of course, you have companies like
Midland Credit Co UK that has a stellar loan calculator, complete with estimates for different
credit ratings and interest rates, but in the event that the companies you call don’t give you an
actual figure, then you can at least compare prices, flexibility, and actual value of the service.
Check for packages that will make your life simpler if you can't find a reputable lender that’s
cheaper.

What is your actual repayment plan?

If you can’t figure out the interest rate, this is the most important question of all. The amount,
frequency, terms, and flexibility of your repayment plan will dictate whether or not you can afford
the loan, and how free your cash flow would be after expenses. Of course, the freer your cash
flow, the better — better chances for getting approved, better for accidental and incidental
expenses, and better for your peace of of mind. Before asking about all the bells, whistles, and
other extras, ask about the repayment plan first.

What fees are attached to the loan?

Hidden fees: they’re everywhere. Of course, all of these fees can be found in your contract, thus
not necessarily making them ‘hidden fees’, but it’s still best if you ask your agent or dealer
about them. If you don’t feel comfortable asking your dealer or agent, you can always check out
forums. You’d be surprised at the wealth of information there is on websites like Reddit. One
forum on myFICO, for example, had a topic on getting a high interest loans from RoadLoans
because of bad credit. Somewhere down the comments, a member informs the contributor that
RoadLoans charges a loan acquisition fee to the dealer, who in turn passes onto the borrower,
added to the price of the car.

Remember that there is more to finance and loans that just one-time deposits or
weekly/fortnightly/monthly fees. Before signing anything, make sure to ask about administration
fees, penalties, early termination fees, or anything else you may find in your contract. And if you
think that buying outright will get you out of them, think again. Some companies have fees for
that too.

What are the other car-related expenses that I need to prepare for?

Of course, apart from your daily petrol, cars have a few more things that require money (and
even time). From registration to insurance, to car service and repairs, there’s a plethora of
things for you to consider. Some companies try to be a one stop shop for all of your vehicle
needs. Alpha Finance, for example, packages registration and insurance with their car
repayments. If you don’t like the idea of needed to worry about insurance and rego before or
after purchasing the car, you might want to consider looking for a company that has these car-
related package. This way, you don’t just get a car, but also the convenience of having car-
related paperwork and expenses covered for the next two to five years. If you want to push it a
bit further, ask your lender if they have packages for car service, tyres, windscreen, and repairs.

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