 
Understanding Auto Loans for People with Bad
Credit
If you are trying to buy a new car, but have
old car finances – in addition to not-so-good credit – you may have
your work cut out trying to find a car you want in the price range
and with the interest rates the feel fair to you. In the end, if
your credit score is too low (between 500 and 600) you might have to
face up to the bad debt you’ve created and accept the high prices
you’ll have to pay for a new car. But there are still a few things
you can learn that will help you get the best out of what you can
consider auto loans for people with bad credit.
If you have recently undergone a bankruptcy,
had a previous car reposed, or even a defaulted credit card, it may
feel that you will not be able to overcome these hardships to buy a
new, reliable car. The good news for you is that the economy has
changed so much for the worst that many people are suffering with
much worse credit than they could have ever imagined. Car dealers
had to make adjustments in order to move cars off of their lots, so
in conjunction with finance companies, they began offering more auto
loans for people with bad credit.
Auto loans for people with bad credit have
reputations for being the worst loans ever – and often they are. You
may find one or two auto dealers who really empathize with you as a
human being and want to see you drive off of their lot with the best
deal possible. But many others have seen it all and are more
interested in getting as much money from you up front as possible
before the car has to be repossessed. Just because you have bad
credit, however, doesn’t make you any less intelligent, so if you go
into a dealership armed with knowledge about the auto dealer’s
intentions and your own credit report information, it is possible
that you can bargain with him or her to get a better deal than you
though you could.
Knowing what’s on Your Credit Report
I know this can be an unsightly scene, but it’s
something you’ll have to accept; seeking auto loans for people with
bad credit means you should begin to face that credit report you’ve
been avoiding since you began accumulating debt as a teenager. The
funny thing about these credit reports is that often times people
don’t realize how many things they can actually clear off now. When
you were younger, you may have accrued debt from small and big
things. For example, you may have an unpaid cable bill from when
times were rough, and the total sum due now is $150, which may not
be difficult to pay off in the present. Paying off some of your old,
smaller debts will help remove item lines from the report, which
will make it look like you’re at least trying.
Another reason you want to get a hold to your
credit report information is that you don’t want to be in total
shock when you get to the car dealership and they laugh in your face
and project a car note as big as a mortgage. They dish out auto
loans for people with bad credit regularly, so they are accustomed
to doing this – especially if they sense that you have no idea of
what your credit score is. You have to keep in mind that auto
dealers are already known for being difficult to trust. Throw in a
dealer who is willing to sell a car to “anyone, regardless of
credit” and you have a recipe for a rip-off.
Many dealers, with good and bad reputations,
want to get some type of bonus for selling you a car when there is a
good chance you won’t complete the finance agreement. So they stick
on high interest rates to make you suffer for their risk. This may
be an expected part of the process for you, but what you don’t know
is that many who sense your ignorance regarding your credit score
will tack on an even higher interest rate than what the financing
company offers only to keep that profit for themselves. So you could
end up spending upwards of $400 each month for a Ford Focus where
your friends are only paying $200. This is one of the tricks that
encourage them to pass out auto loans for people with bad credit
willingly.
Consider Going to a Bank to get financed
Getting financed by a bank may seem like a
privilege only good credit holders have. “What bank will ever loan
any money to me?” is the questions many people find themselves
asking. But banks are the business of making money also, and many
have found that offering auto loans for people with bad credit isn’t
a bad idea. There are several companies like Capitol One, Household
Finance and AmeriCredit who offer auto loans at present; and by
working with them you don’t have to worry about them trying to raise
the price of the car or by adding in extras like credit insurance or
even ignoring your trade-in credit. Plus, if you don’t like what the
car dealer is offering, you have a check in your hand that you can
take to another dealer – you are no longer at their mercy.
Avoid the Pitfalls
If for some reason you are declined by a bank
and you do decide to finance with the auto dealer, know there are
other schemes they can use to charge you more. Here are a few:
“Subject to Approval” Financing – some dealers
who issue auto loans for people with bad credit are known to have
you sign the paperwork and actually let you drive off with the car
thinking you have made your final agreement. However, if you sign a
contract that says it is subject to final approval, they can call
you back and say you weren’t approved only to give you a higher
interest rate than what you originally agreed to pay. Because you
signed the contract you have to do it – so be careful!
Prepayment Penalties – many auto dealers draw
up auto loans for people with bad credit that are meant to keep them
paying high interest rates through the term of the loan in order to
make a significant profit. To ensure you do your part, they’ve
created prepayment penalties that actually result in a charge to you
for paying your car off early! If the penalty doesn’t look too bad,
you may not be hurting from it; but your best bet is to avoid it and
any other extras they throw into your contract.
Getting a new car can be an exciting prospect,
but remember it is important to be cautious when dealing with
dealers who offer auto loans for people with bad credit. They will
tell you they want to help you, but most are trying to help
themselves to a profit while ensuring the protection a huge
financial loss. So if you cannot get your credit score up some
before going to buy a new car, visit the dealership armed with
knowledge of the ways auto loans for people with bad credit can help
or hurt you. This way you still hold some of the power in your
hands.
|
