Understanding Bad Credit Auto Loan Financing

If you are a person who knows the odds of you getting approved for a loan to buy a car are much lower than winning a $300 million lottery jackpot, I’m assuming you have bad credit. Don’t worry though; you’re not alone. There are millions of people in the United States alone who are suffering from bad credit as a result of a few mistakes they made, a few mistakes someone else made, general irresponsibility, or an unexpected hardship. Whatever the reason may be for your bad debt, there is no question that your financial credibility is pretty much shot for the next seven years. As a result, it is probably hard to convince anyone to extend credit to you for much more than a cell phone (if that). Many financial institutions and dealerships have realized that the excess of bad debt has required some adjustments in their guidelines to get more people back in the loop; and as a result, we have seen the invention of bad credit auto loan financing.

What is Bad Credit Auto Loan Financing?

Bad Credit Auto Loan Financing simply means the process of offering a loan to a person who has subprime (or bad) credit. While it is simply wonderful that there creditors willing to offer a loan to a person who may not otherwise have had a chance to get a car, some people who actually take one of the loans often end up feeling that by signing their name on the dotted line they have signed their soul over to the devil. This is because the interest rates that they are subjected to with these types of loans can be so abusive that they end up paying thousands more for the vehicle than what was listed on the original sticker price.

Don’t get me wrong; this is not the practice of all businesses that offer bad credit auto loan financing, however, it is more common to expect to pay much more than you would have if you had good credit. I guess this is their way of making sure that they either get as much money as they can upfront before having to repossess the car, or just a way of rubbing in the fact that they are taking a risk with you – and you owe them for the risk.

Unfortunately, people are finding that bad credit auto loan financing can take even uglier twists and turns at times depending on who they work with. So it is very important to carefully examine who you’re dealing with and know you have the right to get up and walk away from a potentially damaging situation at anytime.

Tricks of the Trade

Below are a few tricks that dealers have used to trick unknowing borrowers into pay more:

Hiking Up Interest Rates – Many dealers have been known to add their own hidden fees and additional interest rates to what is offered through their financial companies. This is done to make even more of a profit for them. To avoid this happening to you, know the standard interest rates applicable to your score and state as well as the length of term, down payment, and sticker price of the car.

Subject to Approval Contracts – This is something that more and more people find they are falling victim of. How it happens is the dealer has you verbally agree to a price for the vehicle down to the interest rates applied and monthly payment. They have you sign a contract that, in small print, notes the contract is “subject to approval.” This means that even though you’ve agreed to a price, they have to right to make adjustments after you walk out of the door. You can drive home with your new car assuming your price is set in stone, only to get a call from the dealership a few days later saying that they have run your credit and unfortunately it was worse than they thought, so the financing company is raising the interest rates, thus raising your car note. Since you signed the contract there is nothing you can do but pay. So make sure that you read all of the fine print and even ask to take it home to review it if you have to. 

Your Credit Report Accuracy is Key

Having an inaccurate report can adversely affect your bad credit auto loan financing experience – which is probably bad enough as it is. I know it seems impossible for something so official to be inaccurate, but it actually can be, and regularly is for many people. There are many reasons that this can happen to you. One common reason is that you have a common name. If your name is John Williams, you know there are tons of others out there, which means your report could easily get confused with someone else’s.

Another reason is that an agency may have failed to report your paid debt to them even though you have completely fulfilled your obligation. It is important that you make sure they do their job to report your commitment to pay off the debt. If they don’t then paying it off was in vain.

To make sure that everything is accurate, you need to get your report from all three bureaus. In case you didn’t know, you are entitled one free report each year from each bureau. And though the reports won’t include your score (this comes at a cost) you will still have access to all of the items listed on your reports that affect your score.

By looking over your report, you can verify that each bad debt is truly yours. If it isn’t, you can dispute it with them and many times they will remove it after communicating with the agency reporting it. This will help you improve your chances of either not needing, or having a better experience with bad credit auto loan financing – and any break you can get is better than none at all, right?

As long as you understand all that is entailed in bad credit auto loan financing, you should be able to have a decent experience. It’s just important to remember that because you have bad credit doesn’t mean you are obligated to be subjected to any interest rates offered to you. Shop around and do your homework before agreeing to any terms. You may find that the bad credit auto loan financing you accept is not far off from your friends with good credit.