(705) 474-6444

3 Car Loan Myths

If you have your eye on a new or used car, you may have to consider financing options. The problem that a lot of people face is that they don’t have optimal credit and may not think that they qualify. While many lenders offer bad credit car loans, there are still a lot of myths that circle the choice. You shouldn’t let these turn you away from the financing that could get you your dream car. Here are the three top myths when it comes to car loans.

A Low Credit Score Guarantees Rejection

This isn’t true at all. In fact, there are dealers and lenders that specialize in car loans for people with bad credit. Poor credit will not stop you from financing a car.

You Can’t Refinance if You Had a Poor Credit Score

When you’re approved of a car loan with a low credit score, you are given the opportunity to build your credit over again. After a while, as your score builds you will be given more options. It’s common for people to refinance their loan and come up with a cheaper rate after they have built up their credit score.

Income Doesn’t Matter if You Have Bad Credit

Income absolutely matters! Income and the other debts that you owe play a big role in the size of the loan you can be awarded. While lenders do pay attention to your credit, your income also plays a large role in whether or not you’re approved. This can also affect the rates that you’re given.

Don’t allow myths to turn you away from car loans. Even with bad credit there are many options out there. While it can be a difficult choice for many people to decide whether or not they want to look into financing for a vehicle, it’s important not to be deterred by myths. Only the facts should be an influencing factor on your decision.

Down Payments: Turning Upside Down to Right Side Up

There are many benefits to making a sizeable down payment on car loans. The more money you can put down up front, the less you will have to borrow. When your principal is made lower by a large down payment, you will pay less money in interest over the term of the loan. A large down payment can also get you out of upside down status sooner.

How Upside Down Happens

Being upside down on your car loan means that you owe more money on the car than it is actually worth. This is a normal occurrence in the early stages of the loan’s term. A car’s value depreciates quickly once you drive it off the lot. If you only pay 10% down, and the car loses 25% of its value in the first 6 months, it is easy to see how you can be upside down in a flash. As you make your monthly payments, it balances out, but if you are staying upside down for three or four years, that can be problematic.

Turning the Tables

The best way to move more quickly from being upside down to owing less than the car is worth is to make a large down payment. If you just put 5% down, you are barely covering the taxes and fees associated with the purchase. If, however, you can put down at least 20% of the purchase price, you should be outrunning your vehicle’s depreciation rate within two years or less (for a 4-year loan). Of course, if you can put even more than 20% down, that gets you into positive equity territory even faster.

Getting out of the upside down state can give you peace of mind when it comes to the overall value of your vehicle. If you can make a large down payment on your next car, you will be driving a vehicle that’s worth more than you owe on it in no time.