What does it mean to be told that you qualify for a guaranteed auto loan? Certainly, if you’ve been struggling with a bad credit rating and have been turned down for an auto loan by your bank or credit union, getting any kind of financing that will allow you to provide transportation for yourself and your family is a positive step forward. In the long run, guaranteed car loans may be the key to rebuilding you credit rating.
How Does a Guaranteed Car Loan Work?
Guaranteed car loans are designed to help people with bad credit acquire necessary transportation while still insuring that lenders do not lose their investment. The loans are usually made by the dealership itself, although there are lending firms that work with specific dealerships. That is, the kinds of cars you’re eligible to purchase will be limited, and almost always the available vehicles have been pre-owned.
Once you’ve selected a car, the dealer will ask you to provide a down payment; this can be a trade-in or your equity in a trade-in. Once the down payment has been decided upon and subtracted from the cost of the car, the remaining amount is your purchase price. The car dealer, or the lending agent for the firm working with the dealer, then determines the rate of interest you’ll be asked to pay on the amount you’re borrowing. (This rate is likely to be quite a bit higher than the rate extended to borrowers with good credit ratings.) The car’s purchase price plus the total interest to be collected on the loan makes up the amount that you are going to be borrowing.
Making Payments on a Guaranteed Car Loan
The amount of the loan is then divided into weekly payments. As the borrower, you will be expected to pay the full amount of each payment in person, usually to the dealership. In the case of guaranteed car loans the dealer owns the car you’re purchasing, he or she can repossess the vehicle if you haven’t paid in full or paid on time. As an independent merchant, unaffiliated with an auto franchise, the dealer has little choice but to repossess the car you’re buying if for any reason you can’t uphold your end of the bargain.
Making the Most of Guaranteed Car Loans
While the concept of weekly payments and the threat of repossession may seem a heavy burden, you’re in a position to reap some benefit from buying a car with a guaranteed loan. Prompt, up front, and frequent payments can and should become a fixed habit, one that will stand you in good stead in the world of modern finance. See if you can find a guaranteed car loan dealer or firm that will notify the Canadian credit bureaus of your regular payments: there’s no better way to raise your credit rating and qualify for loans with better terms in the future.
While it’s true that the vehicles you can purchase with a guaranteed auto loan will be second-hand and therefore older and perhaps less reliable than a newer car, look upon this purchase as a step up to something better. Because you and your car dealer are going to become very well acquainted as you pay off your loan, take advantage of this opportunity to develop a personal relationship with a professional in the field of car merchandising.
For many folks with bad credit, the guaranteed auto loan can be the first step to rebuilding their credit rating, helping them develop new patterns of loan management while accessing the transportation so necessary in the modern world.