It is rare for someone to have enough cash on hand to pay for a car. If you are planning to buy a car and you don’t have the cash to purchase it, you need to apply for a car loan. This can be very challenging if your current profile is a bad credit rating. Bad credit means you’re in a difficult financial situation so you are less likely to pay off a loan. Your worth as a borrower is actually based on your credit score which is a three digit number. It is also called the FICO score since the first company that made the calculation of the scores is the Fair Isaac Company.
You can get a good loan with low interest rates if your credit score is high. You will realize that buying a car with bad credit is a hard mission so it is much better if you do some things to improve your credit ranking.
The reason why there is a credit score is to give loan companies a good idea about whether you can pay back the borrowed money or not. So, if you have had loans in the past and made the necessary payments on time your score will be higher which leads to an easier process when you want to get a new loan.
This is actually a vicious circle because you need to get a loan so you can make payments then you can get a better score so you can have a new loan. It is comparable to a dog chasing its own tail. If you are just beginning to build your reputation as a borrower, the best way to do this is by using a secured credit card. With this method, you are required to deposit some amount of money, around $300 or so, to the credit card company. The company is going to keep that money as collateral in case you fail to pay your bill. You can use your secured card like a normal credit card. Make sure that you pay your bill on time and the start of your credit history will look good. Also, if you always make payments on all your bills, the companies will note on your report that you “pay as agreed” and this will look good for future loan applications.
You also have the option to finance a car with bad credit at a car dealership but you have the extra burden of paying very high interest rates, more than is normally charged. But, usually after just six months of making on time payments, you can apply for re-financing where the interest rate is lower because you will already have proof that you are a good credit risk.
The capability to get financing is really important in this current economic situation so you should begin now developing a good credit score.