Internet surfers with bad
credit looking for an auto loan are bombarded with advertisements most
days. Many of these ads are truthful in their bad credit auto loan
options. However, there are many things to avoid, and this article will
describe some of those.
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 requirement, interest rates from 5-26%, and
amortization (the length of the loan) anywhere from 2-4 years.
This may sound like a lot of bad news for bad creditors looking for an
auto loan. But with some good planning and foresight, these auto loans can
actually help people with bad debts rebuild their credit history.
The worst situations in bad credit auto loans show up when car dealers
artificially inflate the pricing or interest rates on their cars. Auto
dealers who specialize in bad credit loans will take a car normally
selling for $5,000, inflate the price to $8,000, take a $2,500 down
payment and then finance the purchase at 24%. Now the bad creditor 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 then what’s
listed. Only in exceptional circumstances would you ever pay more than
this for a car.
Two different ways of selling a car have emerged recently with the new,
Internet economy. 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 car 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 car loan. However, with this system,
there is no way of researching the auto dealership you are 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.
