Michiganders really love their cars, and, apparently, so does the rest of the country. According to recent data, almost half of the adult population in the U.S. currently has auto loan debt. The fact that consumers have been buying cars is great for the auto industry. However, a lot of the auto loans that car buyers are signing on to these days come with less than ideal terms. Yes, it’s relatively easy for someone with a low credit score to get approved for a car loan, but it will likely come with a high interest rate. Also, statistics show that there are millions of Americans, including plenty of Michigan residents, who are currently behind on their auto loan payments. If the vehicles attached to these delinquent loans are repossessed, the consumers who’ve defaulted will see serious damage done to their credit scores. This will make it harder for them to finance another car, and possibly put them at the mercy of predatory lenders.
Why Michigan Consumers with Low Credit Scores should be Cautious with Auto Loans
For most Michigan residents, car ownership is necessary. Even the larger cities in the Wolverine State are spread out enough to make having personal transportation a requirement for getting around. Of course, vehicles aren’t exactly inexpensive to buy – even used. This is why most car buyers opt to pay for their vehicles over time with financing.
For Michigan consumers with good credit scores, car financing is cost-effective. These buyers normally get competitive interest rates that range from three to seven percent (depending on the current prime rate). For car buyers with low credit scores (or “subprime” credit), on the other hand, auto financing can be very expensive.
Michiganders with bad credit can usually find dealerships that are willing to get them financed, but the interest rates they receive are often as high as 20%. In addition, a growing trend among consumers is auto loan extension. They will extend the term of their car loan in order to bring down the monthly payments. Some Michigan consumers are signing taking out car loans for as long as seven years. So, if these buyers are paying a 20% interest rate over seven full years, they will end up paying a very hefty sum in interest charges.
These heavy interest charges, combined with extended loan terms increase the likelihood of auto loan default for car buyers with bad credit. This is how too many Michiganders end up making their bad credit even worse. If they miss a lot of payments, or, even worse, have their vehicle repossessed, their credit score will take a huge hit. So when they need to buy a replacement car, they may be forced to go to a “no credit check,” “buy-here-pay-here” dealership. Financing obtained with these types of dealers is expensive and usually does nothing to help a buyer’s credit score.
If you need to finance a vehicle, but have reason to believe that your credit isn’t great, the first thing you should do is check your credit reports. It’s always important to know exactly where you stand with your credit before applying for any type of loan. Also, you will want to be sure that there are no errors on your credit reports that are unnecessarily bringing down your credit score.
Tips for Michiganders with Bad Credit Who Need to Finance a Car Purchase
If you have damaged credit and your car purchase can wait, you should try to improve your credit score as much as possible before seeking auto financing. If, however, you need to buy a vehicle soon, you should at least check your credit reports for errors and dispute any inaccuracies that you find. Once you’ve submitted written disputes to the correct credit bureau(s), the will have 30 days in which to investigate your claim(s). Under the Fair Credit Reporting Act (FCRA), the major credit bureaus, TransUnion, Experian, and Equifax, are required to remove any item on a credit report that is proven to be false.
Once you start shopping for a car and an auto loan, be careful about taking the first offer you receive. Remember that even though your credit may be less than perfect, you can still shop around for the best interest rate possible on your car loan. It will also be helpful if you can provide a substantial down payment. This will lower your monthly payments and allow you to reduce the total amount of the loan, which will save you money in interest charges down the road.
When it comes to getting errors off credit reports, Michigan consumers don’t have to go through the process on their own. They can get a FREE credit repair lawyer to ensure that their rights are protected and their disputes are handled in a timely manner.
The Free and Legal way to Get Better Credit
Don’t let errors on your credit reports bring your credit score down. At Michigan Consumer Credit Lawyers, we’ve been cleaning up credit reports for consumers since 2008 for free. How do we do it? All of our fees come from the defendants in cases that are settled. This is why our clients pay nothing for the work we do.
Let’s start the conversation about what we can do for your credit. Set up your free consultation today by calling Attorney Gary Nitzkin at (248) 353-2882 or contact us on our contact page.