Bad credit is the equivalent of a bad score on your credit card report. (Remember how your parents made you feel? Banks make you feel the same way.)
For many consumers, it’s just a fact of life. Sometimes you just can’t pay your bills. Life happens, and our finances can’t always catch up with the consequences of job loss, family emergencies, or illness. Bad credit happens, it doesn’t make you a bad person. You don’t feel good when you’ve had financial problems that caused you to miss or pay loans, bills, mortgages, and services. Banks and credit card companies consider it “high risk” for financial transactions. This usually means that a person with bad credit is denied credit entirely or is charged with high interest rates.
So if you have bad credit, should you apply for a car loan? Probably not, but keep reading… Let’s see the consequences of that application.
• First, your auto loan application may be denied.
• The lender may charge you a high interest rate that makes the loan unaffordable.
• The seller may offer you a car at a higher price than its actual price.
If a special “bad credit” lender approves your application for a car loan, it doesn’t mean that everything is going smoothly from here on out. You will have to repay the amount you have received as a loan and also a higher interest rate.
People with decent credit scores can get financing at rates as low as 10% for 7 years. On the other hand, someone with a low credit score ends up with financing ranging from 5% to 26%, and is typically expected to pay it off in 2-4 years. You may also need to pay 50% of the total amount as a down payment.
Find a better solution
Auto financing is not a good idea if you are trying to get out of debt and rebuild your finances. If you’re serious about buying a car, ask yourself these questions: . Are you able to pay a high interest rate? Are you ready and willing to give up a large part of your salary to pay for a car every month?
The best way to prevent bad debt is to stay away from these types of loans, period.
Instead, trade in your used car for another used car and save your money for next year. Or, if you live in a major city and don’t need a car for everyday driving, check to see if ZipCar (www.zipcar.com) or FlexCar (www.flexcar.com [http://www.flexcar.com/]) are available in your area. They allow people with good driving records to prepay for a car rental at a fraction of the price a rental company charges, and you don’t have to pay for gas, either. If you need a ride to work, go to Craigslist (www.craigslist.org) and post it in the “Ride Share” section.
Work hard to pay off your debt and rebuild your credit instead of taking out one of these great loans. You can survive without a mountain of debt and a shiny new vehicle. There are alternatives if you can be a little creative and patient, no matter what your situation.