Getting financing for a car can be slightly hard to do if you have bad credit; however, it is not an impossible task. If you have bad credit and want to buy a car, you may want to use this opportunity as a way to improve your credit score. A good way to do this is by taking a high-interest car loan with the idea that you will refinance it later on. Here are three reasons this is a good way to handle buying a car if you have credit that is less than stellar.
It Gives You The Ability To Purchase A Car Now
The interest rates on loans are determined by the risk level of borrowers, and one of the most common methods lenders use for evaluating risk is a person's credit score. Having a low credit score will not usually stop you from getting a car loan, but it will result in paying a higher rate for a car. While a higher interest rate will result in paying more for the car, at least a loan like this would still allow you the opportunity to buy a car.
You Have The Opportunity To Build Your Payment History
The good news is that if you get approved for a loan, even if it has a high interest rate, you will have the opportunity to start rebuilding your credit. Your credit score will move up and down based on the things you do financially, and getting a car loan and making all the payments on time will actually cause your score to increase. Payment history makes up 35% of your credit score, so using this purchase could be a great way to increase your score.
You Can Refinance
If you decide to go through with this as a way of improving your credit score, you may also want to take additional steps to help your score increase. This may include disputing items on your report that are inaccurate or repaying debts you owe. With the right steps, you might significantly increase your score in just one year. If so, you could then apply for a refinance loan for your car. With a higher credit score, you might be able to refinance to a new loan that has a much lower interest rate.
If you would like to learn more about car loans and interest rates, visit a car dealership like Western Avenue Nissan today or contact a company that offers auto financing. This could be a great way to start improving your credit score today.