If you have bad or less-than-ideal credit, a car loan can prove the fastest way to for you to rebuild credit and improve your credit score.
It’s one of those things that sounds too good to be true, but actually is true.
However, it only works if done right. Consider the following before taking out a car loan. Just know that it is possible to do so, no matter what your credit history, and that it’s very possible it will help put you on the path to better credit.
Rebuild Credit With A Loan
Credit agencies and potential lenders look at your credit in terms of revolving credit and installment loans.
Revolving credit typically involves credit cards. The term “revolving” is used because your credit card payment can vary each month depending on how much you owe and, in some cases, changing interest rates. You may also choose to pay a different amount each month.
An installment loan involves borrowing a set amount of money with fixed terms on the amount you will pay back each month. That includes a car loan, which is generally for more money than you can borrow using a credit card. Managing an installment loan and paying it off can boost your credit rating and give lenders more confidence in your ability to pay off another kind of installment loan, such as a home mortgage.
Find The Right Lender
Lenders are not equal. Not in the interest rates they charge or the amount they will loan. Also, not in the people to whom they are willing to extend a loan.
Before getting into a car loan, you will first have to find lenders willing to work with those with poor credit. Many of these type of lenders – who know people go through rough times and can need a second chance – are among those who partner with Apply & Buy.
Going through a service that connects you with lenders has advantages that include ease of use and access to many lenders. Also, you get pre-approved for a loan, ensuring that you have the confidence before even shopping for a car that you have the financing you need.
Pay It Back
This is, by far, the most important step. To rebuild credit scores, you need to pay back the car loan – an installment loan – on time or even early. That means it’s important not to borrow more money than you need or buy “more car” than you need.
When taking out the loan, make sure to know the monthly cost and plan your finances accordingly. It’s a payment you never want to send in late, much less miss a payment. But if paid back on time, it shows creditors that you are managing your finances well.
Those simple steps can lead you to better credit through a car loan. While it requires careful planning and a strong commitment to repaying the loan, it can help rebuild your credit back to where you want it to be.