Bad Credit Car Loans - What Should I Know?

Obviously, your credit history has a lot to do with whether or not you get financing for a car, but unfortunately, many of us do not have an excellent credit score. This does put you at a disadvantage, but it doesn’t make buying a car impossible. There are a handful of things that you should be aware of before signing on the dotted line, and even those with less than perfect credit, can find a solution. Here are some things that you should pay particular attention to.

share article

Plan in Advance

As soon as you start thinking about buying a car, check your credit score as this could give you extra time to clean up negative factors on your credit report. The extra time taken to improve your credit score, will enable you to get favorable loans terms, or at the very least, better ones than without doing the extra work. Pay all past due accounts,dispute errors, and possibly take advantage of opportunities to add positive information to your credit report. In addition, make sure that you pay all your bills, on time, between now and then. Don’t take on large loans elsewhere, including new credit cards. Charge-offs, late rent payments, debt collections, and the like are all red flags for lenders and will make getting a loan with favorable terms much more difficult.

Prepare to Make a Larger Down Payment

One of the smartest things you can do is make a larger down payment on your vehicle.After all, you are financing the borrowed money and not the down payment itself. This makes for a smaller balance, which of course makes for a smaller monthly payment. If you are financing less, the higher interest rate might be a bit more palatable. The larger down payment can offset fees and perhaps even give you a better opportunity to purchase a nicer vehicle. For example, if you are trying to buy a $25,000 car, but are putting $7,000 down, at the end of the day you are financing $18,000, going into the loan. Obviously, it’s much easier to borrow $18,000 than it is the full $25,000.

Check the Average Interest Rates

You can check the average interest rate of auto loans online. Keep in mind that if you have poor credit, your interest rate will be larger than the average. People with excellent credit will pay lower interest rates but be leery of anything that is more than double the average rate. The loan interest rate will not only affect your monthly payment but would also affect the total cost of the vehicle in question. The interest rate is by far one of the most important things to get right.

Be Very Careful of Buy Here, Pay Here

All over the country, there are several “buy here, pay here” automotive dealerships.They tend to offer on-site financing with credit qualifications that are far less stringent,sometimes without credit checks at all. But they also tend to be overpriced, poor quality vehicles. This is not always the case obviously, but if you do go this route, you can expect to provide pay stubs, make bi-weekly payments, and find a car with somewhat higher miles. It is strongly recommended that you have a mechanic look at the vehicle before you put money into it.

Look into Nonprofit Agencies

Believe it or not, there are programs out there that cater to people in low income brackets. The help offered isn’t available in every state, but low interest loans are available to some. By doing some searching for nonprofit agencies, you may find a much more reasonable solution to your financing issues. Each agency has its own qualifications, and of course this will take a significant amount of work, but it could save you thousands of dollars in the end.

If You Have Bad Credit, You Can Be a Target

Unfortunately, there is an entire industry dedicated to scamming those with bad credit. Predatory loans are out there that can put you in a new car, but they will have extraordinarily tight terms, and will leverage the buyer to the eyeballs in debt. The reason for this is that these loans are quite often sold almost immediately. The company that does the loan has no downside, because they make a small profit by selling the debt and then they move on. They are no longer concerned as to whether or not you pay. This is very much like the subprime mortgage issue we saw about a decade ago.

Make Sure to Read All the Paperwork

Far too often, people will get so excited about buying the car that they don’t look into all of the ins and outs of the loan. Loan documents can be confusing and overly complicated, but they are important documents. Understand all of the terms, and make sure that the paperwork matches what the dealer verbally agreed to. At that point, you can start to sign for your vehicle.