No one is immune to financial difficulties whether they are the results of poor choices, the loss of a job or other unexpected issues. While most people are trying to their best, once you get into that bad credit hole, it’s hard to dig your way out. One of the major consequences of poor credit is the inability to make big purchases. This can affect you in more ways than one.
Second Chance Auto Loans: A Way to Get Back on the Road to Financial Health
Credit is essential to maneuvering around in today’s world. Even financial institutions have begun to look at a person’s overall picture before giving them a bank account. The issue when trying to buy a car is that the majority of lenders are looking for people with decent to good credit. That means if you have poor to bad credit, you’re most likely not going to get a loan. What’s worse is that if you can’t get loans, it’s not easy to fix your credit.
Second chance auto loans—also known as bad credit auto loans—can be a way for consumers to get into a car and work on their credit. They are typically offered by subprime lenders or through dealerships that offer in-house financing. These people are more equipped and skilled at handling consumers who have a less-than-perfect credit history.
- Subprime lenders – Subprime lenders work with what most people call special finance dealerships. They are lenders willing to work with people with bad credit histories. Special finance dealerships work much like a regular dealership would, except the focus is on financing people who are usually denied through a third-party lender. The interest rates are often higher, but it is a way for people to get an auto loan. One things consumers should note are the predatory lenders. Always know the signs of a predatory loan. It will safeguard you. Just because your finances aren’t perfect doesn’t mean you should be taken advantage of.
- In-house financing – In-house financing works differently than subprime lenders. They don’t use a third party to lend, but instead, do it in-house. This means they finance the loans themselves; people pay the dealership each month for their vehicle. In-house financing can be beneficial because you don’t always need to do a credit check, and it can allow you to get into a car when there are no other options. Again, you’ll want to look for a reputable dealership—one that’s been in business a long time and has a trusted reputation within the community.
What You Need to Know Before Getting a Second Chance Auto Loan
Before attempting to get a second chance auto loan, you should know some basic information. Know your credit score and anything affecting it. This means pulling your credit report. You should also be aware of your debt to income ratio. In general, your DTI ratio shouldn’t be higher than 40%. When deciding on vehicles, know the price range you can afford; and be realistic. When you’re looking at cars on the lot, narrow it down to a few and look at their Kelley Blue Book value and reviews. The last two things you should do before making the purchase are to have the car looked over by a mechanic and to compare insurance rates. This will ensure you get a rate you can afford and a car that will last.
What Do You Do After Getting a Second Chance Auto Loan?
If you get into a second chance auto loan, the last thing you want to do is mess your credit up further. You’ll need to stay vigilant about making payments on time, and not letting things spiral out of control. Some of the ways to do this are:
- Create and stick to a budget
- Build an emergency fund (work odd jobs, sell things or get a second job)
- If you’re having difficulties, talk to the lender, don’t let it get out of hand
Second chance auto loans may be the only way you can get back into a car. But also remember, they are a great opportunity to repair and build your financial reputation as well.