Can a Car Loan Help Repair Bad Credit?
Life never stands still. Good or bad, there’s always something that is changing. Some of those circumstances like relationship breakdowns, unexpected illnesses, job loss can cause missed payments because of insufficient income. Some of those circumstances are because of irresponsibility or a lack of understanding, and the results are the same: late or missed payments. It all leads to bad credit, collections, and even bankruptcy in some cases.
Once you have bad credit, it takes time and hard work to get back on track. Your credit history stays with you for seven years. Any time you apply for a credit card, a loan, or a mortgage, the lender sees your past financial indiscretions.You’re considered a high-risk client and receive less than optimal repayment terms and interest rates. But a car loan can help repair bad credit.
How Can a Car Loan Help with Bad Credit?
You might be wondering how borrowing money for a car will aid your bad credit situation. The facts are that it does help. Here’s how:
A Car Loan Shows Responsibility
For a normal car loan, you’re worried about the best deal possible. When you have bad credit, you’re concerned about getting a car loan at all. When you get a car loan, it shows that a lender is willing to trust you to repay a loan for thousands of dollars.
A car loan, even with bad credit, shows responsibility. As long as you keep paying on time every time, it lays the foundation for solid credit in the future.
It Builds Equity
When you buy a car, your loan eventually becomes less than the car’s value. At that point, you have equity in your car. Equity is evidence that you have proven yourself responsible for making your payments. As well, if you do fall on financially difficult times, you are able to sell your car to relieve the pressure of payments and have cash in hand.
You Make Consistent Payments
Sometimes bad credit happens because you haven’t established a routine to deal with debt repayment. A credit card has varied payments and is unsecured debt – it just doesn’t look the same to lenders. A car loan has set payments that must be made on time. As long as you make your payments when they are due, your loan is in good standing. Over time, that will change your bad credit rating to a good one. At the same time, you’ve established a mindset to deal with debt repayment.
It Makes Your Next Loan Easier to Get
Once your loan has been paid off and discharged, lenders start to look more favorably at you. You’ll be offered lower interest rates and better repayment terms for your purchases and even on your credit cards.
Keep in mind that it’s not just car loans that have to be paid on time every time – it’s ALL of your payments. Stay current with your loans to repair bad credit.
Do you need to buy a car even though you have bad credit? CarUp KC can help. We have specialized lenders who will do their best to get you into a car you love. Call us or visit us today to get the process underway.