How to Use a Car Loan to Rebuild Credit
There are many ways to rebuild your credit - you might have already checked your credit score, and are working to catch up on payments; but one of the easiest ways is, surprisingly, by purchasing a new vehicle. This strategy can payoff by improving your credit rating over time, and although rebuilding credit is a difficult task, a new vehicle can show creditors you are a reliable person committed to making small payments on time.
Car Loans For Any Financial Situation
With a low credit score rating, it can be difficult to get a credit card or a loan through regular financial avenues. Getting a car loan is usually much easier, because car dealerships have a variety of lenders to choose from to find an interest rate suitable for your needs. The fact that these loans are secured by vehicles is a strong incentive for lenders to offer reasonable rates as well.
Fix Your Credit Score
Car loans are a unique and beneficial way to improve your bad credit score. Showing that you have a history of making payments on time makes up a huge portion of your credit score calculation, and an easy to obtain auto loan gives you the opportunity to prove yourself. Creditors also like to see that you've got a variety of different loan instruments that make you a well rounded consumer. The diversity that an auto loan adds to your credit profile further boosts your ability to rebuild your credit.
A Car Loan is a Reliable Source of Credit
It's also helpful that an auto loan is a fixed and predictable way to build your credit. Unlike a credit card, which varies from month to month and offers the possibility of making frivolous purchases that don't help you in the long run, an auto loan is the same every month and is a restricted credit account related to something you need. A reliable vehicle is not just a way to rebuild your credit, it is an investment in peace of mind and stability.
Pay on Time to Rebuild Your Credit
The key to successfully rebuilding your credit with an auto loan is making payments on time, every single month. It is best not to use any grace period to see maximum improvement in your credit score. Although you won't incur interest during your grace period, using it can still negatively affect your score - making it more difficult to rebuild your credit.
Make Car Title Loans Work for You
Another way you can rebuild your credit and improve your credit score is with car title loans. A car title loan is a secured loan where you can use the vehicle title as collateral. When you get a title loan, you must allow the lender to put a lien on the car title and temporarily pass the title to the lender. Interest rates are usually higher with title loans, but you are likely to be approved even with very bad credit. In addition, paying off a car title loan can allow you to become eligible for more traditional loans in the future.
If you have bad credit, it doesn't mean you are a bad person. Difficulties fall on the best of us in life. Many creditors do see bad credit as a reflection that someone can't be trusted with their financial responsibilities, and a car title loan can give you the opportunity to prove them wrong by making payments on time consistently. Creditors report when you take out a loan, and also report when you make on time payments, so making every payment on time will not go unnoticed!
If your payments are late, this will be reported also, so you should be very careful when obtaining a car title loan - making sure that you are capable of making payments, and committed to doing so.
Drive Next Can Help
Our close relationships with select car dealers in Alberta, as well as a wide range of auto lenders, means that we are uniquely positioned to help you get you the auto loan you need, at the best rate possible - even if you bad credit. Start rebuilding your credit today with an auto loan built for your unique circumstances.