As you can quickly guess from its name, the third chance at car credit is a solution offered by financial institutions for people who have a bad credit rating but who want to be granted financing for their new automobile. This third chance aims to propose financing plans. Let’s see if the third chance at car credit is just a solution or a real opportunity.
The third chance at credit: definition
The third chance at credit is the term for different auto financing programs that are offered by conventional financial institutions. These programs are offered to people whose funding request is considered high risk and whose conventional funding programs are not accepted. Indeed, each request for financing a car loan requested from a conventional financial institution is subject to a decisive evaluation which involves observing, among other things, the credit applicant’s history and credit rating.
A car loan financing program: details
A third chance financing program may, for example, and in many cases, involves pre-leasing an automobile. Because the financial institution starts by renting an automobile, it takes much less risk of having its reimbursement not made because it remains the owner of the vehicle until the borrower has paid the loan in full. In most cases, according to the contracts offered by each financial institution, the residual value is low and the borrower can buy the car at the end of the term of the loan. The majority of requests made to financial institutions are accepted because the banks take almost no risk. In the worst case, they can resell the vehicle.For this third chance to be accepted, it is then in most cases necessary to pay an amount that will pay for the depreciation of the automobile. This corresponds to around 20 to 25% of its initial price.
The pros and cons of a third chance at car credit
Advantages: Because the third chance is always an open contract, it is possible to stop it by buying it entirely at any time. In addition, this type of financing is considered a commitment that increases your credit rating with each payment made to your financial institution.
Disadvantages: These funding programs are often very expensive but also incentive. Indeed, you must always be careful to choose an automobile whose price will respect your budget in the long term so as not to get into debt with a financial institution for too many years. In addition, these financing programs require interest rates which are generally around 30%, which can quickly ruin you. Finally, financial institutions often sell additional insurance and guarantees to drive up the final bill.
Because it generates a lot of additional costs, the third chance at credit is not always the best solution available to you to be able to finance the purchase of a new car. Another alternative is to request a short-term loan from a private company specializing in personal loans, which will lend you a small amount in the short term without doing a credit check, but only according to your repayment capacity. More advantageous, these personal loans allow you to target the acquisition of a car that respects your budget and to have interest rates lower than the third chance at credit with financial institutions.