Do you find yourself in the position of having poor (or non-existent) credit, but still expecting to need to buy a car in the near future? While the situation can take extra effort (as well as some added expense) it is not impossible to secure bad credit auto loans that still provide the best possible terms for the consumer.
Firstly, if you are considering accepting a bad credit loan from a car dealer, be very cautious. While not every dealer employs such tactics, there are quite a few who specialize in bad credit buyers who will inflate the prices of the vehicles they sell and then offer in-house loans at higher interest than usual. It is always a good idea to check out the full amortization (the cost of the loan paid out over time) including all payments to principal and interest as well as any fees plus the down payment in order to arrive at the total cost paid for the car you are considering. Compare that total to the value of the vehicle itself. You should of course expect to pay more than the actual value, because financing DOES cost money, but unscrupulous dealers are offering “deals” where the buyer will be forced to pay some 3 to 4 times the actual value. In many of these cases, the buyer ends up being forced to default on the loan because it is too high a payment to carry, which will cause the car to be repossessed and further damage the credit rating of the buyer.
In finding a legitimate offer for a bad credit auto loan, the buyer should expect to pay a higher interest rate than would be offered to a consumer with a better credit rating. You should also be prepared to pay a higher initial down payment. Credit rating also affects the amortization schedule offered … while those with better credit may be offered terms ranging up to 5 to 7 years to complete repayment of the loan, bad credit will usually reduce the offered time to repay to around 2 to 4 years. All of these factors are necessary to protect the lender, and will generally result in a higher monthly payment for the borrower than would have been the case if their credit was better. However, there is a good side to all of this … in repaying the loan faithfully and making payments on time, the consumer’s credit rating will improve and rebuilding of a good credit rating can begin.
If you don’t already have a particular car in mind, that can work to your advantage. Using online referral sites that ask for your financial information in order to provide you with an auto loan will generally then do one of two things. If they are associated with a network of dealers, they will then forward your information to a local dealer or dealers who are able to offer you financing. Depending upon the quality of the dealers in the network, you may then be offered better options on cars, financing terms, and prices. If the referral service is affiliated with a lending network, they will likewise forward your information to a number of potential lenders, who then will hopefully compete to offer you the best possible loan for your particular situation. Either of these can produce a winning situation for the buyer, and save time as well.
Above all, and especially if your credit is very poor, you should be willing to remain flexible. Don’t become discouraged if your first attempts fail to result in securing a loan. Be willing to continue trying, and be willing to consider a different vehicle if your first choice cannot be approved. Just be wise, and don’t end up paying far more than you should, or place yourself into a situation that will further damage your credit.