What is second chance credit financing?

Open any newspaper and you will likely see an ad offering second or third chance credit financing. If you have recently been denied for a car loan but need to purchase a vehicle, then the idea of getting this type of loan can be enticing. That said, there are implications to be aware of.

Second and third chance financing are for those who may have run into some financial difficulties which lead to a poor credit score. The reasons that explain having trouble meeting our payment obligations can be many, and include job loss, poor budget planning, unexpected repairs, injury which leads to significant time off work, or divorce, among others.

“Second chance credit allows buyers who do not have a strong credit score to purchase a vehicle. Because banks use your credit score to determine how risky you are as a loan candidate, the main implication of second chance credit is that the loan will have a higher interest rate. That said, for many consumers it is the only option available to them and overtime can help build back their credit”, says a finance specialist at Gyro Mazda.

Before taking out a second chance credit loan, the first question you need to ask yourself is whether or not you actually need to buy a car. Because the interest rate is higher, you have to know that you will be paying much more than the value of the vehicle you are buying. So unless you absolutely need a vehicle, you may want to put off your purchase until your credit improves. If not, make sure you plan your budget in advance in order to know exactly the amount you can spend on your next car.

That way, you will be sure that you can cover your monthly payment and by doing so, you will be rebuilding your credit.