Bad credit? Here’s how to secure a car loan

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Bad credit? Here’s how to secure a car loan

When you apply for vehicle financing, your credit rating is one of the very first aspects of your finances that is checked. And it can have a significant impact on whether or not your application for car finance is approved or not. But it is not impossible to apply for a car loan with a low credit rating and with some tips and tricks you can buy the car of your dreams.

When you speak to the car dealerships in Mpumalanga, you will need to tell them what your credit rating it. This is because some dealers who sell second-hand cars in Mpumalanga might offer you a higher monthly instalment once they realise your risk factor is higher.

And while this should not put you off of looking for second-hand cars for sale in Mpumalanga and surrounds, you should be working towards correcting your credit history. So, once you have chosen your dream car from the diverse range of cars for sale in Mpumalanga read on below for tips on how you can take out a car loan despite having bad credit.


Find out your credit rating

FInding out your credit rating when applying for car finance will help you to find any issues that you need to rectify. You will also have a good idea of where your score falls on the scale of good to bad, allowing you to think of ways to improve it in the future.

When you go into the bank or speak to your lender, you will be able to explain your low rating and assure them you are taking steps to fix it. However, if you have a low score due to a large number of missed payments on a loan, credit card or account, you might find that your lender is hesitant to approve your loan. Be sure to explain that you are making steps to improve this score.


Think about a co-signer

If your credit rating is deemed too low, you could look into speaking to a friend or family member about being a co-signer on your loan. This means that they are responsible for repaying your debt if you cannot pay or if you miss too many payments.

Your friend or family member must have a favourable credit score in order for your lender to consider the application. This also means that, at the end of your loan period, the co-signer is considered to be a co-owner of the car. While this is not an issue for many people, it can become a bone of contention among some family members, so consider this option carefully.


Look into a down payment

If you know that your credit rating is less than desirable, you can remedy this by opting to pay a down payment on the car of your dreams. This will immediately decrease the amount of the loan you need to take out and will increase the likelihood of your loan being approved.

But you will need to be sure that the downpayment you offer is something you can afford. If it will put you into even more debt, then it might not be a good idea. A down payment of R20 000 for a car that costs R100 000 in total means that you only have to borrow R80 000, and this can significantly lower your monthly costs and will help towards improving your credit score.


Do your research

Doing research on the annual interest rate increase, the value of the car you are interested in and financial terms and conditions will help you to be prepared when looking at the terms and conditions of your loan.

The annual increase in interest rate of a loan is important to know when applying for finance with bad credit. This is because the increase in interest each year will have an effect on your ability to repay your loan. Speak to your lender about an interest rate that is affordable while still taking into account your bad credit score. Knowing the value of the car will help you to ascertain whether or not you are getting the best deal possible.


Know exactly what you can afford

You can use online calculators to discover your affordability, or you can draw up a budget by looking at your salary and taking into account your credit debt. One of the major factors in your car budget will be how much you have to repay each month to lower your credit debt, so you might only be able to afford a cheaper car.

Speak to a financial adviser about what you can realistically afford and do some research on cars in that price range. You might find that you have to put your dreams of owning a car on hold until you can afford to make regular repayments. Research current interest rates and possible increases for a better idea of what the market is doing before you go off and start looking for a new car.

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