Bad Credit Auto Loans
If you have less than stellar credit and are looking for a set of wheels, you may ask yourself in despair, "But who in their right mind would lend a person with hurt credit history money to buy a vehicle?" Well, it’s not that bad, and there’s plenty of credit available. In fact, getting a credit for a car can be easier than a typical unsecured personal loan, since the car is automatically used for collateral. The lenders that provide auto loans typically fall into one of two categories:
- Subprime lenders – They will charge an interest rate that is higher than the going, or “prime” rate charged by conventional lenders, sine they want to help customers who have bad credit get a good car and a good loan, too. Though you get charged a higher interest rate, it is not high enough to make you feel as if being “gouged” for money, or that the lender is making a killing on the interest rates.
- Hard money lenders - Does not go by the traditional rules which help to protect the banks from people defaulting on their loan. They don’t require as much information as a subprime lender does, and do not do such things as verify the income of an applicant. This means that they have plenty of people defaulting on loans, and so they charge a very high interest rate to make up for all the defaults. When you use a hard money lender, you typically have to have some sort of collateral.
Obviously, you will be much better off if you go with the subprime lender. This type of lender can not only help you get a new or a used car even if you do not have good credit, but can help someone who just recently went through a bankruptcy proceeding to re-establish their credit and start afresh. That new car you have been yearning for could be yours sooner than you think, even if your credit is bad.
A credit union, bank, or any other auto loan lending sites are the best places to find the right auto loan for you. Typically a credit union or bank auto loan requires a large up-front down payment with a high monthly interest rate. The down payment usually comes out to around 20-25% of the total auto loan, and annual interest rates (APR) can range any where from 5-25%. If the lender accepts any collateral, such as home equity or an other automobile, you may use that toward your down payment. The amortization (loan term) for a person with bad credit could uncomfortably be as low as 2-4 years, while a person with good credit could receive amortization for as long as 7 years. Making timely payments each month on your bad credit auto loan will help rebuild your credit as well.
Note: without a down payment it will be very hard to buy a car on bad credit. If you are going through bankruptcy you must usually wait until your bankruptcy case is complete before you apply for any credit loan.
Keep in mind that if you do take out a bad credit auto loan on a low down-payment or if you have taken a long term bad credit auto loan for a vehicle that is fast depreciating in its value in the first two years, you may be heading for an "upside down" situation. This signifies that you owe more than the worth of the car. It is quite common for buyers to fall in such a situation a couple of years into their five- or six-year loan.
Getting an auto loan at the dealership
Car dealerships can set you up with an auto loan, but they will most likely run it through a third-party bank. When you are approved for your “bad credit auto loan” from a car dealer, the interest rate will automatically be higher than their advertised rate, which they always arbitrarily calculate based on the best possible credit. Car dealers may even will inflate the price of the desired vehicle, and then charge high interest on top of it, to cover their risk. By the time you’ve paid it off you though, have may have spent double the original purchase price with the high interest.
Always research the value of a new or used car before purchasing, or even, showing up at the lot. Being acknowledgeable car buyer lets you know exactly how much they should and shouldn’t pay. Keep in mind new car dealers tend to approve bad credit auto loans more than private used car lots, simply because of the pressure from the manufacturers to move inventory. In fact, sometimes buying a brand new car is cheaper in the long run then buying a used car, so don’t rule it out even if you have little money.
The industry standard source for new and used car values is the Kelly Blue Book, so read up on the car you’re interested in at
www.kbb.com
Auto Loans Online
The Internet has quickly become a major source for bad credit auto loans. A typical online auto loan application requires you fill out some basic personal information and answer a few financial questions, and is free. Note: Always make sure you fully trust the website you are providing information to, lest it be an identity-theft scam. Before you finalize your auto loan request, always double-check and correct any missing or incorrect information.
Online auto loan applications are automatically re-directed to an expert car dealership’s loan advisor for evaluation at your selected dealer(s). After the loan advisor talks with you and accepts your application, you can start discussing loan specifics and interest rate numbers, and check out the car in person.
Quick used car buying tip
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Always consider looking in the auto classified sections and car marketplaces including Craigslist and AutoTrader to try to find a private party seller with the car you want. Many times, (especially in this economy where some are hit harder than others), it pays to negotiate with private sellers since they are easier to bring down on price than dealerships filled with professional salespeople who don’t want to look bad in front of their sales managers. Once you get the car at a lower price, you can go to a bank and get similar loan terms that the dealer offered you, but you have already paid less as it is.