Do a quick search for second or third chance credit on the internet and you'll quickly see that this type of loan does not have a very good reputation. But Is this reality justified? Let’s take a closer look.
A Fairly High-Interest Rate
To begin with, second and third chance loans require much higher interest rates than traditional financing. While a new car is often offered at rates of less than 3.0% and a used car usually offers rates below 10.0%, a second or third chance loan may be accompanied by an interest rate of up to 25.0%, perhaps even more.
The buyer finds himself or herself paying a considerable amount of interest which sometimes increases the monthly payment, but most of the time it is the duration of the loan which is increased to cover these interest charges.
If our financial situation hasn’t stabilized, this loan can become a real problem. It’s therefore important to do our homework and make sure we can afford the payment that comes with the financing.
That said, for many consumers who need a vehicle for work, for example, this is often the only option if they have experienced financial difficulties in the past.
In other words, second or third chance credit financing, even if it involves certain risks and requires very high-interest rates, is often the only option we have left when our credit is not up to par, but we can’t function without a car.
The Importance of Budgeting
It becomes very important to calculate our budget and accurately determine the amount we can allocate to our purchase.
When we are sure that we will be able to pay this amount without difficulty, it’s time to shop for our second or third chance loan. Make sure to choose a vehicle that has been inspected and that does not cost too much in terms of maintenance.
If you have found a certain financial stability and you calculate your budget well, you will be able to respect the monthly payments and gradually your credit will improve. You may then have access to more advantageous financing.
To learn more about second chance financing, contact us today.