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Avoid These Mistakes When Applying For a Car Loan on Bad Credit

by Remie Van Der Hulst

Your previous financial mistakes should not prevent you from owning the vehicle you want. In fact, some lenders will still be willing to finance you for the car you want even with bad credit. This is because sometimes the vehicle may be deemed as collateral in case you fail to pay along the way. However, you need to play your part as well in order to be approved for the loan. It's for this reason that you need to educate yourself about a few things concerning being financed for a car loan with a bad credit. Making mistakes won't only make the loan to be declined, but can also further damage your credit score. Therefore, avoid the following when applying for a bad credit car loan.

Mistake 1: Overextending the Loan Period 

Reducing your monthly payments by taking a long loan may not be the best idea. This is because when you have a bad credit, the interest rate that you will be charged on the loan will be higher than the normal. Therefore, if you take a long loan, you will end up paying more interest than the normal over the course of this loan.

The best way to handle this situation when applying for a car financing on bad credit is to look at the total cost of the vehicle rather than focusing on just how low the monthly payments are. Depending on the lender as well as how your credit ratings improve, you can consider refinancing the auto loan in the course of the repayment period.

Mistake 2: Neglecting Financing Options from Car Dealers

Sometimes car dealer finance options can be your solution. While starting at your credit card company or bank is advisable, because of possibilities of better terms for members, it may not always work, especially if you have bad credit. However, car dealers around town can offer even better interest rates as well as terms for bad credit borrowers. Car dealers might be having other excellent in-house financing options that you may not find at your bank or credit card company.

Mistake 3: Not Considering Midsize or Standard Vehicles

The goal of going for a bad credit car financing should be to acquire a means of transport as you try to improve your credit card scoring. For this reason, it is preferable to go for a standard or midsize vehicle with a lower selling price because you will pay lower interest as well as monthly payments. You can then sell it off and buy your ideal car later when you re-establish your credit.