What To Consider When Shopping For An Auto Loan With Bad Credit
May 29, 2010
Consumers with bad credit looking for an auto loan can be overwhelmed with advertisements from finance companies looking to give them a bad credit loan. While many of these lenders are accurate in their ads about their bad credit auto loan options, there are lots of things you’ll want to avoid while shopping for an auto loan.
Directly financed auto loans for people with good credit are a bit different than those with bad credit. People with bad credit are expected to pay more of a down payment as well as a higher interest rate on their auto loans. Many creditors won’t even extend an auto loan to those with bad credit. Depending on how bad someone’s credit is, auto loans can range from a 20 – 50% down payment stipulation, interest rates from 14-29%, and amortization (the length of the loan) anywhere from 2-3 years max.
This might sound like a lot of bad news for those with bad credit looking for an auto loan. But with some good planning and foresight, these auto loans can actually help people with bad credit rebuild their credit history.
The worst situation in bad credit auto loan is when car dealers artificially inflate the pricing or interest rates on their vehicles. Auto dealers who specialize in bad credit loans will take a vehicle normally selling for $10,000, inflate the price to $15,000, take a $5000 down payment and then finance the buy at 25%. Now the consumer will be in debt to the auto loan company for an inflated price that isn’t indicative of the vehicle’s real value. A way to counteract these types of sneaky bad credit auto loan dealers is to check the value of the car you are looking at, first, and then only pay $200-500 extra than what’s listed. Only in exceptional circumstances would you ever pay more than this for a vehicle.
Two different ways of selling a car have emerged recently with the age of the World wide web. The first is called the ‘dealer network system’. Auto purchasers can get a loan regardless of their bad credit history with this option. Essentially, a potential customer looks at a vehicle on a website, and then answers some basic questions if interested in buying. This information is then passed along to a dealer specializing in bad credit auto loans. Since there are no fees involved, this can be a real boon for the bad creditor looking for a decent vehicle loan. However, with this system, there’s no way of researching the auto dealership you’re about to do business with.
The other new option is called an application service. In this situation, a person with bad credit applies online for an auto loan, and the financial information is then sent to multiple lenders at the same time, with the hope that one or two will be willing to take the credit risk. If the system works, several dealerships with fight for the customer, using price and convenience as their selling points.
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