Is Taking Out a Large Loan Really a Good Idea When You Have Credit Problems?
Many people get bad credit ratings because of loans, and it may not make sense to take out another loan to fix a credit problem. However, it is actually the best way for improving your credit if you make sure to pay back the loan. In this way, you demonstrate to lenders that in spite of past problems, you can now handle your money well enough to stay current on a new loan.
First Steps
The first step is to make sure you are financially sound. If you have bad credit because your spending got out of control, then make a budget, learn how to control your spending, and live your plan for several months. If you have significant debt, particularly credit card debt, then clear as much of that as possible before you go forward. There are free money management counselors to help you accomplish all of this.
At this point, you are ready to consider an auto loan. Figure out what payments you can handle, then work with your money manager as you make your car purchase.
The Cost
With low credit scores, the interest rates on an auto loan will be higher. This means a higher monthly payment. However, it will not be that much higher, because the car secures the loan. You simply account for the higher payments in your new budget as you would for any purchase. This strategy can be one of the best ways toward improving your credit. If it sounds like a good idea, set some goals and start the steps right away.
