Car buying can be an exciting but also stressful time, especially if you are looking to buy a car using loans for bad credit. Rebuilding your credit after a period of financial hardship can feel like an uphill battle and it’s disheartening to know that some lenders care only about where you’ve been and not where you’re going. If you need a new car and you are worried about how you’ll get funding while you’re in the process of rebuilding your credit, don’t worry. Drive Thru Finance can help. Get in touch with us today to discuss your options or go ahead and submit an application and we’ll get in touch with you. In the meantime, this guide to car loans for credit rebuilders may put your mind at ease and give you some useful tips to get your credit back in the green zone.
Protecting Yourself and Your Credit Rebuilding Efforts
Taking even small steps forward on the road to financial health leads to a lot of rewarding moments. You’re taking control of your financial health and proving that you are responsible and trustworthy. It’s natural to feel satisfied and happy when you see those efforts paying off. But your hard work may also come with a feeling of unease and apprehension, a lack of desire to take risks. This makes sense. Now that you know what it’s like to suffer through hard times and credit challenges, why would you want to go back? Fortunately, you can take forward steps like getting a new car and protect your financial future at the same time, all without sabotaging your progress.
Stay Current on All Accounts
The most basic thing you can do to keep your credit recovery on track is to stay current with all of your payments for current accounts. If possible, you might want to avoid applying for automotive financing until you have at least a few steady months with no missed payments. Not everyone has a choice as far as this is concerned; many people currently undergoing financial hardships find themselves suddenly needing a new car. It’s like everything bad happens at once sometimes. But, if you’re mostly recovered from your financial hardships and you’re starting to focus on credit rebuilding, staying current on your accounts has a number of benefits.
Getting into the habit of paying on time is always a good idea. It’s easy to forget due dates with everything else going on in your life, but it’s still a necessity. Now might even be the right time to set up automatic payment for bills, which will make it easier to stay current. But the added bonus of staying current on your bills is that it will give you the opportunity to assess your monthly spending and make a budget for yourself that includes a potential monthly car payment. This way, you can determine what you’ll safely be able to afford when it comes time to obtain financing. Plus, having a recent record of accounts with on-time payments that meet or exceed your minimum monthly balance due, works wonders for your financial health—it’s an important part of credit rebuilding.
The Dangers of Applying Too Many Times or Applying With the Wrong Lender
As you look for car financing lenders, you’ll want to take care to avoid those who might have business practices that will harm your credit before you even sign a contract. For example, some bad credit car loan financial partners work by “shotgunning” your application to various lenders in the hopes that one will accept the application. This damages credit score by showing multiple inquiries into your credit history in a short period of time.
Why are multiple inquiries bad ?
These are a red flag to lenders. It’s essentially like putting a “credit seeker” label on your credit report. A person who seeks out too much credit too fast can seem irresponsible and risky to lenders, who often immediately reject the application if they see this behavior. A single inquiry isn’t going to do much damage. It’s normal for people to occasionally apply for new credit and inquiries into your credit history expire after a short time, usually two months. But multiple inquiries in the span of a few days, weeks or months can hurt, and that impact is greater when your score is already suffering. DriveThru finance doesn’t shotgun applications, making us a safe choice for those currently rebuilding credit. Working with us isn’t an automatic risk factor.
How a Car Loan Can Help Your Credit Score
Rebuilding your credit requires that you make some smart, proactive choices to get some good items into your credit history. By slowly building up the good parts of your history, you lessen the impact of the bad and make the overall picture of your financial health more even and fair to you. This requires you to do things like avoiding applying for too many new cards or loans, keeping cards open to extend the length of your credit history and keep your overall credit-to-debt ratio favorable. You should also pay down debts and make monthly payments for credit card bills and loans on time.
Paying your monthly loan bill on time will give you a little boost for your credit score every month. When you successfully reach the end of your loan term and pay it off in full, you may even have bounced back fully from your credit challenges. To get this benefit, though, you have to make smart choices and fulfill the terms of your loan reliably each month. Even one late or missed payment can throw off your progress, even after several months of steady payment. That’s why it’s essential to pick the right loan for your circumstances.
Take care to consider the loan before you finalize the agreement. Understand what your interest rate is and whether the total value of the loan covers the total value of the car, meaning you’ll take ownership of the vehicle when you’ve paid off the loan. If possible, do not take a loan you aren’t sure you’ll be able to afford. This is a bit tricky—many people absolutely need a car to keep their jobs and they might not currently have the financial freedom to afford high monthly payments. Set your budget as low as possible and understand that by focusing on something affordable in the short term, you’ll set yourself up for more success in the long term. Credit rebuilding can be a slow process and it does require some patience. But if you play your cards right, make responsible choices and fulfill your end of the bargain with your auto loan, you’ll get that credit score up above 600 surprisingly fast.
Steps to Take Before Applying for a Loan While Rebuilding Credit
It is possible to get funding for a new car with bad credit. This is what we specialize in at DriveThru Finance. Bad credit can seem impossible to fight back against if you’re still experiencing the financial hardships that caused your score to dip in the first place. Depending on your situation, you might not need to do anything other than providing the necessary information on our application. However, if possible, you might want to think about taking some extra steps before you get your new car so you can set yourself up for success.
Firstly, consider what kind of car you need. We’d all like to get a luxury sports car, but that isn’t the best choice for everyone. The difference between wants and needs can be particularly important when you’re rebuilding your credit. If you’re going to be in a situation where you need to pay off existing debt on top of the new car payment you’ll take on, consider going for a lower budget than you can afford for your car. You don’t have to completely sacrifice, but even $100 or $200 off your car budget can give you a lot more breathing space to take care of your debt more quickly. As you pay off your debt on credit cards and loans, the interest charges you accrue will get smaller and smaller. Even an occasional extra payment of $100 can make a difference and this may result in lower monthly minimum credit card payments. Reducing your overall share of debt will make a major positive impact on your credit score. Making extra payments also shows that you’re responsible, which is great. It’ll make you feel good too.
Secondly, it can be a good idea to ask for a raise at work or even go for a promotion before you apply for a loan. Most people don’t get the recognition they deserve at their jobs and that’s because many people feel too shy to ask. If you know you’re doing a good job and that your boss relies on you, ask for them to bump up your pay. Getting a raise will boost your confidence and give you more financial wiggle room, which can be a relief when you’ve faced financial hardships recently. If your raise is approved, you can keep your car budget at a level you’d have been able to comfortably handle at your previous pay rate and use the extra money you earn from your raise to attack debt or build up savings for an emergency fund. Emergency funds can be extra important and while it’s not so easy for some of us to save our extra money, every little bit can help.
Whether through saving, setting a smart budget, making extra payments or developing a system to keep track of your accounts so you pay on time every month, there are lots of things you can do to kickstart your credit rebuilding process. Getting a good car loan that matches your budget and working with an honest and fair lender is a great start.