Getting a Secured Car Loan with Bad Credit

January 27, 2012

Secured car loans are one of the options available for individuals with poor credit or little credit. As with most loans, the loan terms are based on ability to make payments, collateral and credit worthiness.

Credit Score

In many cases, one of the key factors in securing an auto loan is your credit score. In order to determine your credit rate, order a current copy of your credit report from all 3 of the credit reporting agencies-Experian, Equifax and TransUnion. You are entitled to a free report every year, and if you have been denied credit or employment as a result of information contained in your credit report.

Once you have a copy of your report, review it for errors and challenge any items that are incorrect or invalid. Almost all credit reports have errors and this can affect your credit score negatively. Also take the opportunity to report any positive credit information that is not contained in your credit report. By taking proactive steps before you apply for a secured car loan, you can actually improve your credit score and potentially the terms of a car loan.

Secured Car Loans

A secured loan is a loan where collateral is used against the value of the loan. In many cases, collateral takes the form of the item that the loan is being taken against-for example, a home or a vehicle. If the terms of the loan are not met, then the lender repossesses the property. This does not release the borrower from their financial obligation, however, and they are still required to pay the loan balance off before the item will be discharged from their credit.

Do Your Research

Besides looking at your credit report in advance of applying for a secured car loan, you should also do some research on the average purchase prices of cars that you might be interested in buying. While you may want to purchase the sleekest luxury car on the market, you may find that you can only afford this kind of car if you offer additional collateral against the loan, particularly if you have very bad credit or a history of defaulting on car loans. However, if you research different cars thoroughly, you may find that you can afford a car that meets your needs without the need to provide additional collateral in order to get a secured car loan. This information will help you as you begin to search for a secured car loan.

Shopping for a Car Loan

Very often today, the best loan terms can be found from online lenders rather than car dealerships, banks or credit unions. There are numerous car loan clearinghouse websites that conveniently require you to apply only once to their system. They forward your application information to lenders who then contact you with loan offers.

The advantage of shopping for a secured car loan this way is that you have several loan offers to compare, including interest rates, length of the loan and any other items that may be included in the loan such as sales tax, registration fees, insurance and anything else that the lender might include. By having these side by side comparisons to evaluate, you can then choose the best loan for your needs.

Secured car loans are loans that use collateral against the loan. In order to get this kind of loan, you should know your credit score, do some research on the type of car you want to purchase and then apply to several lenders to compare loan offers and find the best loan for your needs.

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