What Are Car Loans?
A car loan, also called an auto loan, is the money that one borrows to buy a car. The car loan breaks up the cost of buying a car into monthly payments. The amount you’re eligible to get will depend on your financial situation and the type of cars you want to buy.
How Car Loans Work
The car being bought can be new or used, while the borrower can be an individual or an enterprise. Once the borrower signs the loan agreement, they agree to repay the full loan amount over a specified period, including any fees or interest the loan may accrue.
The monthly payments you make on your car loan will go toward the principal loan amount and the interest charged by the lender. The interest rates are fixed, so you will not be subjected to any future increases. You can use the interest rate you’ve qualified for to calculate the total interest costs.
Also, auto loans are secured loans, meaning the vehicle is used as collateral for the loan. If you default on your payments, the lender can repossess the vehicle to cover their losses. However, the fact that the loan is secured means the risk is lower for the lender, so they can offer you the loan at favorable interest rates compared to other unsecured loans.
In addition, the terms of the loan may influence its cost. Loans with shorter repayment terms often have higher monthly payments and vice versa. However, loans with longer repayment terms may end up being more expensive when you consider the total payments over the years plus interest. Thus, go through your loan offers to determine which option suits you best.
What is Considered Bad Credit for a Car Loan?
A credit score in the mid-600s or below is generally considered bad credit for a car loan. If your credit score lies in that range, you may experience more difficulties getting an auto loan. However, you may still qualify for a car loan for bad credit.
That’s because lenders consider other factors such as past auto-loan payments, loan amount, job stability, and monthly utility payments to determine if you’re eligible for a loan. However, you may incur higher interest rates than people with good credit scores.
Where Can I Get Car Loans for Bad Credit?
When applying for an auto loan with bad credit, you have several options to choose from. These include:
Banks and Credit Unions
Banks and credit unions may give you the financing you need to purchase a car. In this case, you apply for a loan and use the funds to get the vehicle from a car dealership. You’ll then make repayments through the bank or credit union monthly.
One downside of borrowing money from banks and credit unions is that you may need to be an active member to qualify for a loan. Depending on the amount of money you want to borrow, you may also need to physically visit a branch during the loan application.
However, if you have a good relationship with the bank or credit union, you could get the loan at favorable terms and interest rates.
As the name suggests, online direct lenders allow you to apply for a loan, get a lending decision and receive the funds at the comfort of your couch using your smartphone, tablet, or PC. Since everything happens online, you can get a lending decision within minutes and then receive the money within a few days.
That said, you need to research thoroughly to ensure you are dealing with a legit lender. If you don’t want the hassle of comparing different lenders and offers, you can work with an online broker. This allows you to receive offers from reputable lenders by submitting a single loan application form.
Your car dealership can offer you a loan, either directly through the dealership itself or through its partner lenders. This gives you the luxury of shopping for your car and auto loan in one place.
The downsides of borrowing money through car dealerships include high down payments and high-interest rates. Therefore, while it is appealing to do everything in one place, it’s still a good idea to look at other options to see if you can get a better deal.
What Are the Requirements for Getting Car Loans for Bad Credit?
The following is a list of the information you might need to get a car loan.
- Full names
- Active phone number
- Social Security number
- Current and past income sources
- Credit score
- Information on the vehicle you want to purchase (make, model, mileage, etc.)
- Information on other debt(s) you have
Can I Get Car Loans with CocoLoan?
While CocoLoan doesn’t offer car loans, it provides unsecured personal loans, which you can use to buy a car. And because the loans are unsecured, you’ll not use the vehicle as collateral for the loan. Below are the steps to follow when applying for a personal loan through CocoLoan.
Complete a Loan Application Form
Fill out a loan application form on our site to get started. You’ll be asked basic questions about your personal and financial life. The entire process should take you a few minutes.
We have a long list of partner lenders in our network. After submitting your application, several lenders will send you their offers. Compare the offers based on loan amounts, terms, and interest rates, and choose the most suitable one.
Sign the Agreement
Once you’ve settled on an offer, the next step is to sign the agreement. You can complete this process online without having to visit a physical office.
Receive Your Money
Once the lender approves your submission, they will send the money into your account. While the time it takes for the money to get to you may vary from lender to lender, it typically arrives within one or two business days.
How Does CocoLoan Compare
|Why Trust CocoLoan?|
|How much can you get?||$50 to $35,000||Zero upfront charges|
|What are the loan terms?||1 - 36 months||Easy repayment|
|Are credit checks needed?||Yes||Mostly soft pulls|
|Are bad credit accepted?||Yes||All credit considered|
|How to apply?||Totally online||Simple and straightforward|
How Can I Increase the Chance of Getting a Car Loan for Bad Credit?
Getting a car loan isn’t easy if you have bad credit. But you can increase your chances of getting approved for a bad credit loan by doing the following:
Get a Co-signer
If your credit score isn’t good, having a co-signer on your loan can increase your chances of qualifying for an auto loan and even getting approval for better loan terms. The co-signer should have a good credit score and higher income than you.
Increase Your Down Payment
By making a larger down payment, the amount of money you’re supposed to repay decreases, and this may see you get approved for a loan with favorable rates.
Repay Your Debts
Repaying all or a huge portion of your existing debt before applying for an auto loan helps to show the lenders you’re not overburdened by debt and can afford a new loan.
What Should I Do If I Can’t Repay My Car Loan?
If you stop making your auto loan repayments, your car could get repossessed by the lender. Also, the more you miss your monthly payments, the more your credit score is affected. The negative impacts on your credit can remain with you for years, affecting your chances of borrowing money in the future.
To prevent the negative outcomes, here are some of the things you could do:
Contact Your Lender
The first step is to call your lender and explain your financial situation. Some lenders understand that vehicle repossession can be time-consuming and are willing to work with you to get your track payments.
Some lenders may create a new payment plan that takes your financial situation into account. For example, the loan term could be extended to enable you to make lower monthly payments. What's more, some lenders may allow borrowers to skip a few payments without incurring any fees or penalties.
Use Home Equity
If you’re a homeowner, you may be able to borrow a loan against your home’s equity. This allows you to consolidate your debt into a single monthly payment with more favorable terms and interest rates. However, you could lose your home if you’re unable to repay the loan.
Refinance Your Loan
If you have a good credit score and owe less on the vehicle than it’s worth, consider refinancing your auto loan. This simply involves replacing the loan with a new one, typically from a different lender. The new lender pays off your existing loan and gets hold of the car’s title until you’ve paid off the new loan.
With a refinancing, you may get an extended term on your loan and lower interest rates, thus reducing your debt burden.
Sell Your Vehicle
The other option is to sell your car to pay off your loan. This works well if your vehicle is worth more than the debt owed, as you could sell it, pay off the loan, and remain with a few thousand dollars.