Bad Credit Auto Financing: Your Options

November 25, 2014, 9:38 pm
Bad Credit Auto Financing: Your Options

When your credit is bad, no matter what the reason may be, getting a loan can be difficult, almost impossible at times. If you need a car, this may become an even more obvious issue. But do not despair as there are options for bad credit auto financing available to anyone, if you know where to look.

Working With Traditional Lenders

The Positive: Even with bad credit, some banks and auto loan companies will still offer financing to you. You may need to prove a recent history of paying bills on time or providing a genuine reason for your previous credit issues; for example an illness or job loss. If you are able to do so, you will often be approved by many lenders.

The Negative: With this type of loan you will typically be expected to place a large down payment on the vehicle before the loan will be approved. You may also be required to have a co-signer on the loan. You can also expect a significantly higher interest rate than the advertised auto loan rates.

Buy Here, Pay Here Dealers

The Positive: Some smaller, usually independently owner dealerships will offer onsite financing for vehicles sold off their lots. These businesses will often cater to low-income clients or those with bad credit by offering these deals for little to no money down and with no credit checks. They generally require proof of employment and expect payments to be made weekly.

The Negative: As easy and great as it sounds, many of these companies will also often sell the vehicles at a much higher price than what the actual value of the vehicle happens to be. They also usually have no grace period on payments. Missing a single weekly payment could mean repossession.

Working With a Bad Credit Lender

The Positive: Lenders do exist that work with customers who are trying to rebuild their credit. These companies are often a great opportunity for those who are determined to repair their credit. They typically require proof of income and a typical down payment at the time of the loan.

The Negative: These loans are usually only available with a high interest rate. People who choose to take advantage of this type of loan should be cautious about the terms. In many instances, to keep the payment low, a long term of 72 or 84 months will be suggested. This may seem like a great idea at the time, but it means the loan recipient will be paying an enormous amount of interest and the loan may even exceed the expected life of the vehicle. Some loans may not allow the borrower to pay off the loan early without penalty.

Final Reminders

Even if you believe your credit is terrible, always get a credit report before you begin vehicle shopping. You may have better credit than what you think, which will help you to make the right choice about where to shop and what you want to buy. If your credit is as poor as you believed, look for the least expensive vehicles possible, to avoid paying more in interest than necessary.