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Home · Cars · Bad credit car Loan or Lease

Bad credit car Loan or Lease

Having a bad credit report and low FICO score often creates problems when buying or leasing a car. However, banks and finance companies have eased off a bit from a few years ago and are much more willing to do business with customers with poor credit histories. Car manufacturers and dealers have become so competitive that they are willing to take some extra risks to get business that they might have turned down in the past. Futhermore, credit repair has become somewhat easier than in the past.

This does not mean, however, that everything is rosy for those with poor credit. Generally, these people should expect to pay higher interest rates, be required to make higher down payments, or make a security deposit (for leasing). They may even have problems getting auto insurance. It's best to repair your credit report by correcting mistakes and improving your on-time payment history.

Analyze your credit situation first
If you have bad credit, do you know why? Do you know just how bad it is? There are varying degrees of bad credit. Some are seriously bad; some not so bad. A couple of late payments on a credit card account is not as bad as a recent bankruptcy or home foreclosure. Some problems can be quickly repaired; others take longer.

When you apply for a loan or lease, your car dealer and finance company will request a credit history report and credit score from one or more of the three major credit reporting agencies: Equifax, Experian, and TransUnion. The history report details all your past and present credit card accounts, loans, mortgages, car loans, and leases. It shows whether or not you've missed payments, made late payments, to whom, how often, and by how much. Bankruptcies and repossessions also show up. It details balances on all outstanding accounts, shows credit limits, and shows how many inquiries have been made recently by lenders.

Since car dealers and finance companies don't have time to read through credit histories in detail, they also ask for your FICO Score , which is a single number that summarizes your entire credit history. Your credit score is a measure of your credit worthiness and can range from 300 to 850. The median for consumers in the U.S. is about 720. A score above 700 is considered "prime" and will get you the best rates. If you're below about 640, you're considered "sub-prime" and you may have problems.

It's necessary that you know your credit history and credit score, especially if you have poor credit. Often, the problem may be a simple mistake or a couple of missed payments that can be easily explained. A bad credit report can be repaired.

The best source of credit history reports and scores is from the Fair Issac Corp , the company that is behind the scores from all three credit reporting companies. Because each credit reporting agency has slightly different data, your score from each agency is different, sometimes by a substantial amount. By getting all three scores, you can immediately determine if one of the agencies has errors in their data about you.

If you ask for your credit history, be sure you also get your FICO credit score, which is not automatically provided.

Free FICO® Credit Score Estimator

Shop for the best rates
Dealers and their associated finance companies are not your only source of loans and leases. For people with bad credit, it's very important to shop for the best rates on your own at banks, credit unions, and online loan companies. If possible, make personal visits to your potential loan sources so that you can explain your credit situation face-to-face with a real person. This goes a long way and improves your chances of being successful.

If you know you have mistakes in your credit report, you can try to get it repaired yourself but you'll have better and faster results if you let experts such as Lexington Law handle it for you. Credit repair takes time, so get started early. Pay down credit card debts, don't take out new accounts, keep new inquiries to a minimum, and pay your bills on time. These steps will help you maximize your score, and reduce your financing costs.

If you know your credit score and can line up your loan or lease beforehand, you'll not only save money but you'll make your buying or leasing experience much easier and less stressful.

26.03.2007. 12:59