If you are looking for a bad credit car loan, there are a few things you should be aware of before taking that plunge.  With the recent tax incentives from the government, car sales are on the rise.  Under the CARS government program, sometimes called Cash for Clunkers, auto dealers are discounting the price of new cars by the amount of the governemnt credit - usually $3500-$4500.  However, the fine print on many of these contracts states that you as the buyer will be responsible for that balance if the government doesn't pay up for whatever reason.  Because of this incentive, many folks with bad credit are looking for ways to get car loans and take advantage of these deals.

Getting a car loan with bad credit can sometimes feel like a nightmare.  The first thing you should do when searching for a bad credit car loan is to know and understand your credit score.  You can obtain your credit score online for free from any of the three major credit agencies.  Generally if your credit score falls below 620 then you will fall into what's called the subprime category for trying to get a car loan.  Some banks won't deal at all with subprime borrowers, whereas some will specialize in bad credit car loans.  

Once you know your credit score, you should go over your credit report and make sure that everything is accurate on it.  If there is something that you feel isn't accurate, you have the right to appeal it and have the inaccurate statements removed.  Cleaning up your credit report will make getting a car loan with bad credit much easier, and it may even improve your credit score quite a bit.  Once your credit report is cleaned up, it will be much easier to shop around for a car loan.

If after cleaning up your credit report, you still fall into the subprime category, you can still find a bad credit car loan.  Beware, though, that the difference in your credit score will cause you to pay a premium of interest over the life of the loan.  On top of very high interest rates, if you are applying for a car loan with bad credit you can often expect to be paying the loan term out over 5-7 years as opposed to prime borrowers.  The difference in time is because when you are paying a high interest loan, most of the interest gets paid up front while the premium is spread out much longer over the life of the loan.  With this type of loan you will find that even after paying out for two years or more, you own very little actual equity in the vehicle you have purchased. 

The last thing to do when shopping for a bad credit car loan is to get offers from different banks.  It is always cheaper in the end to secure your own loan rather than having the dealer look around for you.  Car dealers actually make a profit from both selling you the vehicle and selling you the finance package.  If you are able to get a loan directly from a bank on your own, this will often save you quite a bit off of the dealer's finance charge.  

If you have bad credit and are looking to take advantage of the CARS program, take advantage of these tips.  Know and understand your credit score as it relates to getting a car loan.  Fix up any errors on your credit report before looking for a bad credit car loan.  Lastly, shop around for a loan before going to the dealer to purchase your new car.