Being a single mom is not an easy feat. They must work full-time, earn money, and care for their children single-handedly. Having a car is a convenient means to travel to the workplace, shop for groceries or drop children at school. Purchasing a new car is not feasible for low-income single mothers. As a result, they have to obtain car loans. Fortunately, affordable loans for single moms are available throughout the United States.
Where Can Single Mothers Get A Car Loan With Bad Credit?
Before applying for a car loan, single mothers need to become familiar with the different borrowing options available. Following are the common types of auto financing that single mothers can avail:
1. Captive Financing
Captive Financing is organized through the manufacturer directly and kept in-house. In other words, you buy a car from a dealership and finance the loan through them. This type of financing may not be a good option if you’re going for used vehicles; however, these loans can be accessible for single mothers with average credit scores. Captive lenders can be lenient and forgiving and have the incentive to offer your loan so that you can purchase a car from them.
2. Dealer Arranged Financing
In this auto financing option, the dealer works with multiple lenders to obtain a loan for their car. As soon as you apply for a loan, you get multiple options. This option is a good choice for single mothers with fair credit as their information will be shared with many lenders immediately. A lot of lenders will consider applicants with bad credit histories.
3. Bank And Credit Union
Banks and credit unions can have financing options for single moms seeking affordable auto loans. Like any other loan, single mothers must apply for an auto loan with a bank and receive pre-approval to take the car dealership. Single mothers have to repay the loan monthly to their bank or credit union directly. This is a good option for single moms with a good relationship with a particular bank or credit loan. Banks or credit loans often overlook the blemishes in single mothers’ credit history and credit score and use their experience with the institution as good evidence of their creditworthiness.
4. Online lenders
Today many fintech companies and online banks provide auto loans to single moms with poor credit. Applying for auto loans generally takes place online, and the interest rates on these loans can vary widely depending on your lender. Single mothers must invest time and effort in looking for auto loans online. Be wary of unfamiliar websites and companies to locate a reputable lender who can offer you a fair deal.
How Can Single Mothers Purchase A Car With Bad Credit?
Purchasing a car with a bad credit profile can put you at a disadvantage in auto financing. Obtaining a loan with poor credit requires you to repay the loan with higher interest rates than people who obtained auto loans with good credit. Nevertheless, you can avail the following ways to beat the odds while obtaining a car loan with bad credit.
1. Making A Big Down Payment
Single mothers with poor credit scores who cannot obtain a loan can make a big down payment which will act as a security for lenders. However, a down payment can be a hefty sum but a worthy investment for single moms with poor credit. Lenders and dealers will see your willingness and capability to pay a down payment to help you obtain a decent auto loan.
2. Pre Approved Auto Loan
Irrespective of your credit standing or profile, dealers will mark up the interest rate on the loan they receive from lenders. For instance, if the primary interest of a loan is around 1.5%, then the dealer will offer the loan at 2.5% to their customers. The additional percentage reflects the compensation for services they perform while arranging customer loans. This may lead to abusive loans for single moms with bad credit. Paying higher rates of interest adds around $52- $100 every month, and if the loan is financed for more than five years, then you have to incur $2500 – $5000 over the life of your loan. So a single mother should try to locate cheaper auto loans outside the dealership.
What Are The Steps Single Mothers Can Take To Apply For Car Loan With Bad Credit?
Even though it is impossible to obtain a car loan with lousy credit, there are still options for single mothers and other low-income borrowers to obtain a loan with poor credit. If you do not have good credit score ratings or a good credit history, you can take the following steps to get approved for a car loan.
1. Check Your Credit Score And Try To Improve It
Single mothers should check their credits before making purchases to understand their position and make adjustments to increase their scores. Improving your credit score will help you to obtain an auto loan with favorable terms and lower rates of interest and even save money in the long run. You can improve your credit scores by paying your bills on time and reducing your debt as much as possible.
2. Know How Much You Can Afford
While purchasing a car, you need to consider the monthly cost you have to bear and how much will be the car’s down payment. Learning about your monthly payment, including gas, upkeep, loan payment, and insurance, is the first and foremost step of your car buying process, which will help you to understand how much you can afford. The more expensive the car, the more will be the monthly costs and down payment.
3. Secure Your Down Payment
Every borrower, including single mothers, has to provide a down payment. The more the down payment, the lower will be your loan amount and monthly payment. A significant down payment will reduce your risk to the lender and help you secure a loan at a lower risk of interest and save money over time.
4. Get Pre-Approved For A Loan
Pre-approval is when the bank or the lender checks your credit score and financial details to tell you the amount of loan they can finance. Getting pre-approved for a loan will give you a better idea of how much you can afford. It will also help you to understand which vehicles are within your budget and can also help you to negotiate a reasonable purchase price.
5. Shop Around For The Best Loan
It is essential to shop around and compare lenders’ rates to get the best deal. Search for a loan with the lowest interest rates and favorable terms. If you have trouble getting approved for auto loans from conventional lenders, then you can look for other options where lenders work with people who have low credit scores.
What Are The Different Car Loans For Single Moms With Bad Credit?
Balancing parental duties with work and other obligations is tremendously difficult. Being available for your kids means you have less time to manage your finances which ultimately affects your eligibility criteria to obtain personal loans, car loans, or any other forms of credit. Some of the factors which may make it difficult for you to obtain a car loan are as follows:
- Having a bad credit score
- Being in debt
- Earning low income
- Not being employed full time
Following are the different types of auto loans that single moms can avail of and attain their car ownership goals.
1. Secured Auto Loans
Many car loans are secured, which means that the loans are guaranteed by a lien on the underlying asset, for instance, the vehicle. Lenders have the legal right to repossess or seize the vehicle if you default on your loan. Secured car loans are less risky for lenders, which is why these loans have low rates of interest compared to unsecured loans. Single mothers who are looking to opt for an auto loan with the lowest possible rate of interest can consider the secured loan option.
2. Unsecured Auto Loans
Unsecured loans, in contrast to secured loans, aren’t secured by any underlying asset. So lenders do not have the right to place liens on the vehicles. As unsecured auto loans have a higher risk for lenders, they come with more exorbitant interest rates than secured loans. Single mothers who cannot obtain secured loans because of their poor credit profile can opt for unsecured auto loans by paying slightly higher interest rates.
3. Simple Interest Auto Loans
Simple-Interest Auto Loans are more flexible for single mothers and low-income borrowers as the outstanding balances accrue interest periodically, and borrowers can make monthly payments. They also have the option to accelerate the payoff and limit their interest expenses by making additional or a bit larger principal payments. Single mothers who expect their cash flow to increase due to reduced household expenses or raise at work or because of substantial savings can opt for these loans by reducing their borrowing costs.
4. Precomputed Auto Loans
Unlike simple interest loans, precomputed loans do not come with flexible requirements and conditions. Borrowers, including single mothers, must make scheduled payments on a predetermined basis. Every payment holds a precise share of the principal and interest of the loan. The total interest and principal amount owed over the life of the loan isn’t reduced because of accelerated payments. If you anticipate an adverse change in your financial picture in the future and have a limited budget, you can go for precomputed auto loans that will give you a predictable payment schedule.
Other Types Of Auto Loans
The following are the less common auto loan types reserved for specific circumstances and do not apply to all vehicle buyers. These are as follows:
1. Lease Buyout Loans
These loans enable leases to gain full ownership and keep vehicles past the end of their lease terms. The fee upfront on this loan is paid by the lender, and the borrower saves to make fixed payments for a stipulated period. As soon as the Lease Buyout loan amount is paid off, the lien will be lifted, and the borrower can own the car free.
2. Title Loans
Title loans are secured loans reserved for people who own their vehicles outright. Like home equity loans, Title loans enable borrowers, including single mothers, to borrow against the value of their car. As soon as the loan is issued, the lender places a lien on the vehicle and takes the position of the title. The borrower retains the use of the vehicle, although the lender has the right to replace him if the borrower defaults on their loans or becomes delinquent.
Being a single mom is an arduous task. They have to struggle financially while balancing income and budget. Many single moms fail to obtain affordable loans because of poor credit profiles. Not all dealers and lenders will accept single moms with damaged or lousy credit scores. A helpful way to become successful is to make a significant down payment or get pre-approved for auto loans. In this way, single moms can know the amount of loan they can afford and the amount of loan they will get approved for.