Bad credit car loans are a fantastic financing solution for people whose financial situation stops them from taking out a traditional loan. To be approved for a loan, you usually need a good credit score. However, specialized lenders across Canada offer bad credit car loans for those with bad credit scores. This means that you can access auto financing, even if your credit history isn’t great.
While this kind of loan can be useful for people who need a car, there are some common myths surrounding bad credit auto loans that make people avoid them.
This article explores some of these myths and debunks them to ensure you have all the correct information before deciding which kind of auto financing you’re going to choose.
Myth 1: All Bad Credit Auto Loans Have High-Interest Rates
Contrary to popular belief, a bad credit car loan doesn’t necessarily have to have a high-interest rate.
Due to the risk associated with lending money to someone with bad credit, interest rates on bad credit vehicle loans usually start around 7% and can go up to 20%. However, your interest rate depends on several factors. These can include your entire credit history, your income, the loan amount, and the repayment term.
Specialized lenders that offer bad credit loans can be very flexible with their eligibility criteria and you may be able to work something out with your lender to reduce the interest rate. Bear in mind that lower interest rates could mean the length of your loan term increases. Weigh up the benefits of paying less interest over more time.
Myth 2: You Need a Cosigner
While having a cosigner will always help your chances of approval, it is not a necessity for bad credit auto loans. Instead, a cosigner can be used if you want to reduce your interest rates or loan term length.
Lenders will see a cosigner as a positive because it reduces the risk on their part. A cosigner is someone who signs to say that they will take on the loan payments if you default. So, lenders take on less risk. However, it is a myth that you need a cosigner to qualify for a car loan with bad credit.
Myth 3: You Need an Enormous Down Payment
As with a cosigner, having a large down payment can benefit your chances of getting approved for a car loan. However, it is not necessary either. While some dealerships may require you to put a down payment on a car, the most important criterion is proof that you can meet the monthly payment amount.
If you’ve got a substantial down payment lying around, that’s fantastic. It will make your chances of approval better and can help towards reducing overall costs. But don’t be put off applying for a bad credit car loan because you don’t have the means to put down a hefty deposit.
Myth 4: Getting a Bad Credit Vehicle Loan Will Only Make My Situation Worse
If you’ve got bad credit, you’re probably thinking that a car loan will make it even worse. After all, a car loan is technically more debt. However, this is just another myth, and the opposite is true.
When you apply for a car loan with bad credit, you have the opportunity to improve your credit score over time. A car loan requires you to make regular and timely repayments, and keeping up with these payments can help your credit score.
Your credit report details your credit history, so if you have kept up with payments on a car loan, particularly one with higher interest rates, your overall creditworthiness will increase.
Once you’ve paid off your bad credit car loan, you may find yourself in a position where you can apply for a loan from a traditional financial institution, like a bank or credit union.
Myth 5: The First Loan Offered is the Best Deal
When buying a car with bad credit, you may be inclined to take the first quote you’re offered. But you need to be wary of some lenders. The first loan you’re offered is not necessarily the best one, and some dealerships may seek to take advantage of those with poor credit.
As evidenced by the myths in this article, there are many misconceptions surrounding bad credit loans, which makes it easy for bad faith dealerships to con people into paying higher interest rates than necessary.
Make sure to shop around for a range of quotes from lenders. Having poor credit doesn’t mean that you have to pay exorbitant fees. Do thorough research on lenders to ensure that you’re not being taken advantage of.
Myth 6: Lenders Won’t Work With People With Poor or No Credit
This article details how lenders will, in fact, work with those who have no or poor credit. It is important to remember that while banks and credit unions may not approve you for a loan, there are lenders out there who will.
Bad credit lenders look at different criteria than traditional institutions. Usually, your monthly income plays a bigger role in your ability to get approved by a specialized lender. Additionally, there are things you can do to make it more likely you’ll get approved by this kind of lender.
Final Thoughts
If you’ve got bad credit and you’re feeling disheartened by your chances of being able to finance a vehicle, it’s time to stop believing the myths! Bad credit car loans offer people with poor or no credit a way of funding a vehicle without having to pay cash for a new car.
Bad credit car loan lenders will look at criteria, including your monthly income, to decide whether to approve you for a loan. You be subject to slightly higher interest rates and you might not be able to borrow as much as someone with good credit, but a bad credit auto loan puts you on the right path.
This type of loan can benefit you in more ways than one. While providing you with much-needed access to a vehicle, it can also help you to improve your credit score and give you opportunities for lower-interest loans down the line.
If you’re in need of a bad credit auto loan in Ontario, then contact Car Loan Masters today. We’re a specialized lender operating out of Markham, Ontario. We help people with poor or no credit finance vehicles and we can help you too. Contact us now to find out more about our loans.