Financing Options for Bad Credit

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Having bad credit doesn't mean that you'll never qualify for financing. Different finance options are available to people with low credit scores. The key is knowing the various options available to you. Whether you're looking to acquire an auto loan or credit card, you can get the financing you need.

Choosing the Right Lenders

  • Finding financing with bad credit mostly involves applying for loans with the right kind of lenders. Several lenders work specifically with people who have low credit scores. For example, if you need an auto loan with poor credit, rather than rely solely on the dealership's finance department to secure your financing, research local and online sub prime auto lenders. These lenders will not reject your application based entirely on bad credit. Also referred to as "second chance" or "fresh start" lenders, these banks may offer no credit check loans or no credit history loans. Using these banks can actually help restore your rating. As you make timely payment to pay back the loan, the bank will report your good payment history to the credit bureaus, thus helping to increase your score.

Credit Card Option

  • Some consumers use credit cards to finance items. But if you have bad credit, getting a major credit card with a bank can prove difficult. While your chances of getting an unsecured credit card are slim, there's a good chance you can qualify for a secured credit card. These types of credit cards are ideal for anyone looking to build credit or repair bad credit. Issued by a bank, a secured credit card requires a deposit, which the bank places in a savings account. This deposit serves as collateral, which is why it's easier to get a secured credit card with poor credit.

Financing with a Co-Signer

  • Finding someone to co-sign your loan is sometimes enough to qualify for financing with bad credit. However, the tricky part is finding someone who's willing to put his credit score at risk. By signing his name to your loan documents, the co-signer agrees to accept responsibility for the debt if you default or stop making payments. To qualify as a co-signer, this person must have a good credit history.

Consequences of Bad Credit

  • Even if you can get financing with bad credit, the consequence includes paying a much higher interest rate on the loan. Interest rates have a huge role in payments, and if you need to keep your payments within a specific range, a high interest rate can decrease your purchasing power or force you to defer a purchase. For example, a borrower with an excellent credit history may qualify for 0 percent interest or a rate within the 2 to 4 percent range. On the other hand, having poor credit may increase the rate on an auto loan to 12 percent, which can greatly increase the monthly payment.

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