Some car shoppers who have bad credit need to look at alternative avenues for financing a purchase of a car or truck, and auto pawn loans are one option for getting around strict credit requirements that established lenders tend to stick to. Lenders offering auto pawn loans, also called auto title loans, may look at credit information less, if at all, because they use an existing auto title from the borrower to secure the loan as collateral. Although credit-based approval might be easier with auto pawn loans, there are some general strategies for putting up your car or truck in a financing agreement.
Use a Vehicle with Value
In order to get a good loan agreement with an auto pawn loan, you need to be able to prove that your vehicle has significant value. Use blue book tools and other market resources to get a good idea of your vehicle’s value, and negotiate this value with the lender. Some lenders will want to offer much less than the vehicle is worth. Sometimes this protects a borrower by limiting the amount available for financing, but in other cases, it hampers a good deal. Talk plainly about vehicle value as part of the overall agreement.
Locate Legitimate Lenders
A variety of lenders compete online with auto pawn loan offers. Not all of these are strictly on the level. Some will take advantage of borrowers with confusing language in the loan agreement. Some will include excessive interest rates or fees that lead to increased debt. And some are just scams. Do some background research before getting involved with one of these lenders.
Figure Out Loan Terms
Another good tip is to be familiar with terms like interest rates, APR, fixed and variable rate loans, and something called ‘rollovers’ that is specific to an auto pawn loan. In an auto pawn loan rollover situation, money that is not repaid during the term of the loan is ‘rolled over’ into another loan with a much higher interest rate. These situations can trap consumers in debt. Learning about loan terms can be a huge resource in negotiating this specific loan type.
Ask About Using an Existing Loan for Good Credit
Lots of buyers find themselves in a bind when they don’t have the good credit history necessary to provide a low credit risk rating. Your auto pawn loan can be the key to a better credit score, but only if lenders report it in a way that will lead to a positive rating. Talk to the lender about how their specific loan will impact your credit score, both immediately and over time.
Keep Track of Rollovers
As mentioned above, the rollover is a key component of an auto pawn loan. Monitor your loan periodically during the repayment term, and always be sure to calculate how you will pay back this borrowed money without incurring further interest in further debt.
Car shoppers who have a bad credit history can take advantage of these tried and true tactics for getting the money they need for a car or truck when established lenders have shut the door on them, by issuing auto loan rejections.