Finding a Bad Credit Loan to Finance the Purchase of a Vehicle

by John Stevenson on January 6, 2014

Borrowers apply for loans for different purposes – home improvements and extensions, urgent repairs, emergencies, vehicle purchases, and others. Banks, finance companies, payday lenders and other entities offer financing. While there are loan sharks that prey on debt-ridden borrowers, most finance companies offer unsecured loans. While non-bank lenders do not usually run a credit check, they require proof of income.

One option is to apply for a bad credit loan with a co-signer. This can be a family member, parent, or relative with a good credit history. It is important to make timely payments because the co-signer takes risk. One option is to present a schedule that shows how you plan to repay the loan.

Most lenders offer bad credit loans with high interest rates because of the higher risk of default. The interest charges vary from lender to lender, and factors such as your credit score, payment history, loan amount, and others play a role. Compare interest rates, repayment schedules, and terms to find the best arrangement. This is a good way to rebuild credit and apply for a loan with favorable terms

Check your credit score before applying. Your score is based on different factors such as your payment history, credit history, types of loans, and more. Borrowers with a score of 680 or higher are offered attractive terms and rates. Banks and credit unions are interested in your payment history, which shows them whether you will be able to make payments. Borrowers with poor credit have other options, depending on the vehicle and loan amount. Financial institutions require that borrowers are up to date on all bills and have a stable job. Additional sources of income such as child support, alimony, or money in a savings account increase your chances of getting approved. Employee gifts, workers’ compensation, and life insurance proceeds are also sources of income. The requirements and criteria vary for self-employed and salaried professionals. Casual, part-time, and full-time employees apply for bad credit loans.

Whether you apply for a regular or bad credit loan, banks expect timely payments. Borrowers can choose from different financial institutions among which banks and individual lenders. Credit unions offer affordable rates to their members but borrowers with poor credit may not qualify. Some borrowers resort to alternative sources of financing, but the interest rates are higher. There are “buy here, pay here” type of dealers that offer higher interest rates. Check whether your local bank offers good deals. A third option is to rebuild your credit before applying. If you have a small car loan, for example, you may want to repay it quicker to improve your credit score. And try to explain your situation to the loan officer. Another option is to borrow from a family member or friend.

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