Car Loan Management Tips With Bad Credit

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Bethany Hickey is a Content Manager and Writer for Auto Credit Express, CarsDirect, and many other automotive blogs. She's a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. 

, Content Manager - October 6, 2020

When you have bad credit, managing your auto loan well is important to your future credit health. A few slipups, or signing onto a car loan with unfavorable terms, could send your credit score and your auto loan on a downward spiral. We’ve got a few tips on how to manage your car loan.

Tips for Managing Your Auto Loan

With less than perfect credit, staying on top of your finances can mean a better credit score. Getting approved for auto financing with bad credit is just step one of credit repair – handling the car loan well is another beast.

We have five tips to help you stay on top of your auto loan and set yourself up for credit repair success:

  1. Stay current and ahead on payments. Avoiding a default and a subsequent repossession should be a priority when you’re financing, and making all your payments on time allows you to avoid this and heavy damage on your credit. If you can, pay two months ahead on your car payment, then continue to pay each month like normal. This way, if you have a month where money is tight, you can take care of financial emergencies without having to worry about missing a payment since you’re ahead.
  2. Pay ahead whenever you can. Higher than average interest rates on auto loans are common when you have bad credit. However, by paying off your car loan faster, you can save on interest charges. Nearly every auto loan nowadays uses a simple interest formula, which means you’re charged interest daily on the balance of your loan. The quicker you pay it off, the less there is to be charged interest on. You can use windfalls of cash, like tax refunds, to pay extra when you can, and save yourself some cash in the long run.
  3. Avoid paying your car payment with your credit card. Most often, credit cards come with higher interest rates than auto loans. If you make your vehicle payments with your credit card but don’t pay off the balance by the end of the month, you’re likely to be charged more interest on the credit card than you would have been on the car loan. If you need to make a payment with a credit card, pay it off as soon as possible to avoid paying more in interest than you need to.
  4. Consider automatic auto loan payments. Instead of having to remember to pay for your car loan, consider automatic payments. In some cases, auto lenders may offer some incentives for having automatic withdrawals. However, be sure that you’re going to have the funds to cover these payments, or you could face overdraft fees.
  5. Consider refinancing. If you financed your vehicle with a higher interest rate than you would’ve liked, then refinancing may be for you. Refinancing replaces your current car loan with one that hopefully has better rates or terms. In order to refinance, there are many requirements to be met. However, refinancing can only be done if your credit score is good or has improved, and you've had your loan for about a year or more.

Managing your auto loan can mean a better credit score, which can improve your chances of getting approved for car loan deals in the future. When you take on a bad credit auto loan, credit repair should be a priority.

However, financing with a lender that doesn’t report your car loan to the credit bureaus doesn’t help your credit. Subprime lenders do report their bad credit auto loans, and they can offer a second chance for vehicle financing.

Car Shopping With Poor Credit

Having a lower credit score can sometimes mean your lending options are limited. However, this doesn’t mean you necessarily have to settle for poor loan terms without the opportunity for credit repair.

Subprime car lenders are for borrowers who’ve been through bankruptcy, have no credit, or have less than perfect credit and don't meet traditional lending requirements. They're third-party lenders that are signed up with special finance dealerships. Finding a dealer with bad credit lending resources can be a little difficult, but we want to help with that.

Here at CarsDirect, we match bad credit borrowers to dealerships in their area that are signed up with subprime auto lenders. To start your car shopping journey, fill out our free auto loan request form. It’s secure, carries no obligation, and we’ll get to work for you right away.


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, Content Manager

Bethany Hickey is a Content Manager and Writer for Auto Credit Express, CarsDirect, and many other automotive blogs. She's a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. 

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