How can I secure the lowest interest rate for a car loan when I have bad credit?

Sept. 9, 2011 - PRLog -- When it comes to applying for financing for a car loan, it is not a privilege but rather a trust you have earned through the years of good bill paying behavior. Banks, lenders, financial institutions including the vehicle manufactures all uses a credit report to judge just how trust worthy you are. At the end of the day no one wants to lend out money of any amount if it is not paid back.

Credit reports are widely available through internet, credit bureaus, and financial institutions. It is always a good idea for you to pull your “own” credit report ahead of time. Knowing your own credit score gives you bargaining power when it comes to lower interest rates. If your credit rating is low, there is no point to bargain about the interest rate because you will be declined for the loan all together. In a typical scenario a person’s credit score that is above 680 is considered to have “good credit”, anything fall below that mark will be considered “bad credit” applicants.

Banks and lenders are in the business to make money; they want to lend out money to people, collect interest and the principle. They want to be assured their loans will be repaid at the end of the term. Interest rate becomes the tool lenders use to asses the risk level of the applicant. The lower interest rates are typically offered to the “good credit” applicants where the banks want to entice them into borrowing money. Since the assumption people that don’t need to borrow usually have some cash, capital, or assets to back them financially, therefore to get them into a loan is difficult, but the returns are usually very secure. That doesn’t mean there is no hope for the “bad credit” applicants; the lenders will still offer them a loan, however just at a higher interest rate.

Therefore if you have bad credit score, don’t be over concerned about the interest rate, it is not in your control, nor do you have an option to bargain. Take the higher interest rate for now, and with good payment schedule or “good behavior” the banks will lower your interest rate in the near future. Typically this process takes up to 12 months or one year or more depending on the financial institution.  

So be patient, don’t be over concerned about the interest rate when you need a car loan. Build up your credit rating over time, and sooner than later you will be back on track to your financial future.

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