Getting a loan is as challenging as making a major life decision like buying a house. You need to be careful with the lender you choose to work with, even in the process of getting a car loan to finance your car purchase.
Since there are many options out there, you need to keep in mind that different lenders will satisfy different needs. Since you are the one in need of the money, you need to consider the right lender to help you get the finances without leaving you strained financially. Here are some of the factors to keep in mind.
If you have a good credit score, go for a traditional lender
A good credit score means you have a minimum of 650, and this will qualify you to get a traditional loan. If you have it, you can go into dealerships, fill the paperwork required, get your car, and finance it as you go along according to the repayment terms.
If you do not have any credit issues along with that, you can also get pre-approval from direct lenders like credit unions and banks. Direct financing is very convenient, because you will know the exact amount you are spending.
If you have bad credit, subprime lenders can help
So you want to buy a certain car, but what happens if your credit score is less than favorable? A bad credit score means you have 620 or less – and in cases such as these, you are better off working with subprime lenders.
The lender will only operate indirectly through special finance dealers, although you will need to meet specific conditions to qualify for a loan. These are residency (living in one place for more than six months), income (certain income requirements) and employment (staying with one employer for a significant period).
In addition, this loan will restrict you when it comes to selecting the car you want, and the interest rates are also higher. However, the loan is not bad in helping you improve your credit score, especially if you do your best to repay the amount on time.
If you have no credit score, in-house financing helps
It is challenging to get an auto loan from traditional lenders when you have no history, or your credit score is very low. This is where in-house financing comes in; the lender does not check your score – but you need to make enough money to facilitate bi-weekly or weekly payments, and the payment needs to be done in cash and in person.
The disadvantages are the significantly high interest rates, and the only cars you can get here are older models. You cannot negotiate the repayment terms either, and the repayments will not improve your credit score, since they don’t report to the credit bureau.
When you are seeking for a car loan, you will need the right lender to fit your circumstances and satisfy your needs. Regardless of the one you choose, you need to make sure it will not inconvenience you on a financial level.