The Two-Part Goal of a Bad Credit Car Loan: Shopping Smart, Rebuilding Credit

 

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Getting a car is the end result of a bad credit car loan — not the goal. The goal of dealing with a bad credit car loan is twofold: shopping smart, and rebuilding your credit. If you go to a buy here, pay here dealership in Columbus, you’re almost forced (in a way) by the dealership to shop smart. Therefore, if you are looking for some guidance when it comes to getting a vehicle and remedying your credit situation, then a buy here, pay here dealership is the way to go. But, you do have some other options. Therefore, we’ll explore those first, then move into elaborating on your two-part goal when you do get a bad credit car loan.

Remember, the vehicle is just the end result of a bad credit car loan, and you need to accomplish this two-part goal first. Part one: shop smart. Part two: rebuild your credit.

 

Your Options for Bad Credit Auto Loans

 

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When it comes to getting a bad credit auto loan, you’ll be hard-pressed to find a new car dealership that will want to finance you. Therefore, the task is finding a dealership that’s trained in helping consumers with bad credit. Like a BHPH dealership, which is a great way to get into a reliable used car ASAP. But, before we explore the BHPH dealership, let’s take a look at some of your other options.

Banks and credit unions are a good place to start. Check with the bank that you’re already a member of. Take a stroll in and ask about bad credit auto loans. Make sure you have your credit score and report from a reputable credit agency beforehand. This will make both your life and the banker’s life easier. If they can’t provide you a loan because your credit is too low, don’t worry. Find a credit union, join it, and ask about bad credit car loans. Compared to banks, a credit union is more likely to take on a consumer looking for a car loan with bad credit. But, even they have to set a limit on how low of a score they can take. Therefore, you might still be out of luck.

You can’t go to a used or new dealership in your area because neither one of them work with bad credit consumers. The banks and credit unions want nothing to do with you, so how are you going to get yourself a car? Simple, head over to a buy here, pay here dealership.

Buy here, pay here dealerships take care of everything in-house, so that means guaranteed financing. What I mean by “in-house” is you’re dealing with just them, unlike a traditional dealership, which uses a third-party lender to get your loan. The BHPH dealership has its own way to lend you money, and you pay them back directly. While the interest on your car loans might be a little bit higher, it’s your last option.

Getting into one of these dealerships is a great way to get a used car fast, and jump-start the process of rebuilding your credit – the second part of the overall goal. Just like the other lenders, BHPH dealerships report your payment progress to the credit bureaus, which increases your credit score overtime.

 

Part One: Shopping Smart

 

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Before we discuss rebuilding your credit, first we should cover part one of the bad credit car loan goal: shopping smart. Now, if you get a bad credit car loan from a bank or credit union, you’ll want to shop smart. If you go to a BHPH dealership, you’re forced to shop smart since the BHPH dealer picks the cars you are eligible to purchase. This is great if you aren’t sure how to go about the bad credit process.

Just keep in mind that you will have to shop what you need (not want), make a sizable downpayment, and be smart about your loan term. If you get a loan from somewhere else though (assuming you’re able), you won’t have someone holding your hand when you go to a new or used car dealership for your car.

Get What you Need — Not What you Want

If that’s the case, you need to make sure you buy a vehicle you need — not what you want. If you got approved for a loan of $10,000 but found a vehicle that runs just fine for $8,000, then go with the cheaper option. This ensures that you’ll be able to afford the payments on it, and gives you the opportunity to make a larger downpayment — which is the next step.

Make a Sizable Downpayment (If Possible)

After you’ve picked a vehicle (preferably the more affordable option), you’ll want to make a sizable downpayment. Don’t listen to the ads hyping $0 down, because the full price of the vehicle will be thrown into the monthly payments. This causes you to pay way more in interest monthly, compared to if you took that extra $2,000 you had from the loan and used it as a downpayment. This might not reduce the length of the loan, but it’s sure going to help keep the monthly payments lower.

Get a Loan Term That’s as Short as Possible

At a BHPH dealership, you’re at the mercy of the finance team. But, if you are financing a vehicle with a loan from a bank or credit union, keep the loan term as short as possible. The longer you stretch the payments out, the more you’ll pay in interest at the end. Even if the monthly payments are lower, the interest is still going to decimate your funds by the time you pay off the loan. Don’t ever go for a longer loan term, get one as short as possible and pay off the vehicle as fast as you can.

 

Part Two: Rebuilding your Credit

 

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While the actual rebuilding process comes after you’ve started making on-time car payments, it all starts with the vehicle that you picked out by shopping smart. Why are you getting what you need and not what you want? So you are able to afford the monthly payments that are required to rebuild your credit.

When you make progress on paying off any type of loan, it’s reported to the credit bureau. In turn, this shows you have financial responsibility, and are able to slowly repair your credit score. The more monthly payments you make on time, the better your credit score will be.

So, don’t look at that high interest rate and groan. Instead, be thankful that you’re able to not only get a car, but use this bad credit auto loan as an opportunity to rebuild your credit score. At the end of the day, this is the most important aspect of the loan you get. Even a BHPH dealership will report your score each time you make a payment to them. Which means when you think there is no way to bounce back from your bad credit, there is still hope.

You just have to be smart about shopping, and then getting those monthly payments submitted on time. If you do this, you’ll be refinancing your loan for a better interest rate, and eventually getting your credit score back on track.