Second chance car loans are bad credit loans designed to help you purchase a new vehicle. These loans typically come with high interest rates and fees, and can end up costing you a significant amount of money in the long run. This is why it’s important to compare providers and find the best rates for your unique financial situation.
Learn more about how second chance car loans work and where you can apply.
Second chance car loans are designed to let borrowers with bad credit or no credit get access to new vehicle financing. Second chance lenders turn a blind eye to the state of your credit report, which is great for borrowers who don’t have the strongest track record. That said, they’ll charge you high fees and rates to compensate for the risk they have to take on.
This risk is associated with the fact that you’re seen as more likely to default on your payments due to your low credit score. As long as you make your payments on time, a second chance car loan can be a good way to improve your credit score and start building up a foundation of assets. These assets can then be used to help secure future loans which will further improve your credit as long as you make good financial decisions.
A credit score is a summary of your credit history expressed as a number ranging from 300 to 900. Bad credit scores typically fall below 600, which is the range where you might have more difficulty securing a car loan. Good credit scores usually range from 600 to 900.
You may be able to get a second chance car loan from your bank or credit union. It’s also possible in some cases to apply through an online lender. Usually, a second chance car loan will be as easy to qualify for as a bad credit loan. It will also come with steeper rates so you should be prepared to spend a little bit more than the average borrower.
A good starting point to find the best second chance auto loan for you is to apply with several different lenders. This will let you compare quotes to find the best rates on offer for your particular situation. It will also make sure that you get a sense of which lenders are willing to work with you, as well as which ones might be trying to take advantage of your bad credit.
You’ll want to look for a rate that falls below 11% and is spread out over the shortest term you can afford. It also makes sense to look for a loan that doesn’t have penalties for prepayment so you can pay your balance off early if you happen to have spare cash floating around.
You’ll also want to make sure to ask your lender if its rates are precomputed or simple. Precomputed rates are pre calculated for every year of your loan. This means you’ll pay 7 years of interest on a 7-year loan, even if you pay your loan off early. Simple interest rates are a better choice because they only apply to your outstanding balance.
There are a couple of benefits to second chance car loans that might make them a worthwhile choice as a last resort.
There are several significant drawbacks to consider before you sign up for a second chance car loan:
Second chance car loans can give predatory lenders a good foothold in the car sales industry. You should avoid working with any lender that:
Here are some important things to consider when deciding if a second chance car loan is right for you.
Second chance car loans are a decent option if you absolutely need a vehicle but can’t qualify for a traditional loan. These loans can be used as a way to rebuild your credit, but they also come with much higher fees and interest rates. For this reason, it’s really important that you only sign up for one if you’re 100% certain that you can afford to make your payments on time.
You should make sure that you factor the additional expenses of car ownership into your budget before you take out a second chance car loan. These include emergency repairs, routine maintenance, gas, car insurance and roadside assistance. If you don’t think you can handle all of these extra costs in addition to your car payments, you may need to consider other options. Read more about the full cost of car ownership in our full guide here.
Be aware that the way you handle your second chance car loan can make or break your credit. If you don’t make your payments on time you risk badly damaging your credit score and potentially even losing your vehicle in the end. This is why you should read your loan agreement very carefully, and be sure that you’re equipped to shoulder the risk and responsibility of taking on a new loan before you accept the terms of your contract.
There are a number of alternatives that you can pursue if a second chance car loan doesn’t seem like the right fit for you:
Second chance car loans typically have lenient eligibility requirements and a relatively straight forward application process.
Taking on a second chance car loan can be a good option if you aren’t able to qualify for a traditional loan. Just be aware that you’ll pay much higher interest rates and fees for this type of loan which means your vehicle will cost you more in the long run. Find out more about what a second chance car loan is and how you might be able to qualify for one.
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