How Getting a Car Loan Will Help You with Your Credit
Posted on: 1 November 2016
If you have really bad credit and need a car, you can get auto financing if you go to the right place. An auto dealership that offers "guaranteed financing" will approve you for a loan; however, you may have to pay a high interest rate on the money you borrow. One piece of good news about going to a dealership like this is that it will offer a way for you to get a car if you need one, but that is not the only good news. The other good factor to consider is that the loan you get can help you build up your credit so that you can qualify for a better type of car loan in the future. Here are a couple things you should think about if you are in this position.
You Will Pay More, But That Is Alright
Even though people with bad credit have to pay higher interest rates, a loan is a loan. If you need a car, this may be your only option, and it is okay if you have to pay more right now for the loan. Getting a car loan is one of the best ways to build credit, and you can view this as a stepping stone for building your credit score.
How Car Loans Build Credit
When you take out a car loan, this will be reported to the credit bureaus. At first, your credit score might dip lower, but after that it should start moving up. This occurs because each time you make a payment, you are building a positive payment history. After just six months or so, you will have six months of positive payment history, and your credit score will reflect this.
Payment history is just one factor of your credit score, but it makes up approximately 35% of your credit score. If you can continue to make your payments on time, and if you do not encounter any negativity to your credit score, your credit score will do nothing but continue to increase. Over time, this can make a bad credit score gradually become good.
You Are Not Tied to Your Loan Forever
A third thing to consider is that you do not have to keep your auto loan forever, no matter how long it is for. If it is a small loan, it might only last for 12 months. If it is a longer loan, it might last for three to five years. No matter how long it lasts, there is always a way out of it, and this is something you can do through refinancing.
If your credit score starts to increase, you could apply for a refinance auto loan when your score gets to a certain point. If you are approved for this, your interest rate is likely to be a lot lower than what it is on your current loan. A lower interest rate will drop the amount of your payments and will save you money overall. You could continue to pay the same amount on your payments, though, and this will simply help you pay off the loan faster.
If you end up keeping your current loan, that is alright too because eventually you may need another car loan. If you do, at least your credit will be better in the future, which means you will qualify for a better rate the next time you need a loan.
If you have bad credit but need a loan, visit an auto dealership that offers loans to everyone. This is a great way to get a car when you need one, and getting a loan will help you improve your credit score. Check out dealerships like Leopardi Auto Sales to see what kind of loans they offer and get started.
Share