First time buyers can find auto financing to be difficult and intimidating. In many cases, it’s the most expensive thing they’ve ever bought. New or used, cars cost a bundle- on average it costs $15,000 for a used car and $28000 for a brand new one. That is one of the biggest expenses incurred during a person’s lifetime, and for first time buyers there is even more expense- bad credit.
Making bad credit auto financing work
Typically, first time buyers have bad credit. This can come as a surprise for some- people often don’t understand that a lack of credit history means a greater risk to the lender, which leads to higher interest rates. For those who have been in the credit market for longer, this is no surprise- it’s been affecting them for longer, after all. Experienced buyers have an idea of how bad credit auto financing affect their buying choices.
According to major credit bureaus, credit scores are built on the number of accounts you have, the types of accounts (credit cards, mortgages, and other loans), the length of your credit history, and your history of paying for credit on time. Most likely, new buyers will fit into the bad credit category, simply because there isn’t enough information to go on. Since the length of one’s credit history can play a significant part in credit scores, this makes sense- no credit history plus no credit length equals bad credit.
This can be a frustrating thing for those looking into their first car loan. Typically, these people see their credit history as spotless- after all, if there’s nothing there, it’s a clean slate. However, as we’ve said before, this isn’t an accurate assumption. Lenders can and sometimes do consider other qualities, however.
The loan industry has been upset in recent years by the fact that, according to certain surveys, only about half of Americans pay their balances in full every month. Paying your balance on time, by the way, is the single largest aspect of your credit, and it makes a huge difference to your credit score. This has led to a steadily decreasing number of people who have good credit, and lenders have had to adjust accordingly.
At this time, about 25% of Americans have a poor credit score. This is a lot of people, and some lenders have begun specializing in these lending conditions. Of course, the same risks still apply- those with bad credit will always have a tough time finding good interest rates. First time buyers can easily get into this market, however, and if they have steady employment they will frequently be able to apply without the need for cosigners. Of course, there’s bad credit from a clean slate, and there’s bad credit from repossessions, collections, and so on. Bad credit from a clean slate is much better than a long history of poor credit choices. If you’re a student looking to get auto financing, check here for more advice.
Bad credit auto financing: Curse, or Cure?
A sloppy credit record is much more difficult to deal with, but needs to be done before attempting to get bad credit auto financing. This isn’t in the same league as bad credit auto financing for those with no credit history, and can be an expensive ordeal. However, those with a poor credit history can also use bad credit auto financing to their advantage, as auto financing is one of the most effective ways to build a good credit score. By the end of the loan term, if there have been no late payments and all obligations have been fulfilled, borrowers will walk away with a much better credit score.