Getting a Car Loan With Slow Credit
When someone has poor or bad credit, they need extra help with car loans. There are more ads today offering "good deals" for financing aimed at people with bad credit.
The credit auto loan process works the same for everyone. People with bad credit are expected to have higher down payments, and they will be required to pay a higher interest rate. Typically lenders will not finance a car that has a monthly payment greater than 20% of your gross income.
New Car Sales
Caveat Emptor - Buyer Beware
Probably the biggest abuse of car dealers in lending to people with bad credit is they often inflate the price of the car and/or the interest rate if they are doing in house financing.
A dishonest dealer might take a car that should sell for $2500 and raise the price to $5000, then take $1500 or more down and charge interest rates of 24-26%. This makes the buyer have a car that is way over book value with high payments, and they will often default on the car which further destroys their credit. These dealers run their businesses by “caveat emptor,” or let the buy beware.
Important Considerations before Making the Purchase
The severity of the bad credit will determine whether you can get a car loan, It will definitely impact the amount required for a down payment requirements and particularly the interest.
Car dealers typically want down payments of 20% to 50%, plus depending on the state where one lives the interest rate can vary from 5% to 26%.
In some states borrowers may use a vehicle they already own as collateral for short term loans at 12% a month. So, when the loan is not paid off another 12% loan must be taken which is effectively costing 144% per years. These loans are illegal in many states and should be avoided.
It is very important to read the fine print on any paper work you sign. Some lenders are dishonest, so besides reading the paper work carefully, also check out the car mechanically.
Of course, you want to drive the car and drive it the way you would typically drive a car. Pay attention to the brakes and if the car is in good alignment. If you have a regular mechanic it would be good to let him check over the car before you make the purchase. Make sure you have any type of warranty information in writing.
Ask the dealer to show you the Carfax Vehicle History Report. This is a report based on the vin number of the car and contains a wealth of information.
This report will show:
- Any title problems
- If the car was in a severe accident
- If it's been rated a lemon
- If the car had been flooded
- If it had odometer problems
- If the automobile has been a rental or a fleet car
- If the auto has high mileage
- How many people have owned the car prior to you
- The report also reveals accident information
- If the car was considered a total loss
- If the airbags were deployed
- If there was frame damage
- It will also show service records.
Amortization is the time needed to pay the loan off in full if regular payments are made. Some amortization tables, plus higher interest rates often make higher car payments much higher. It is important to know if you can afford the car payment before you make the deal. If you can make these payments, it will go a long way toward rebuilding your credit.
Excellent Tips For Buying A Used Car
How to Find a Fair Value Car
If you are in the position of having poor credit but needing a car there are a couple of things you can do. If you find a particular car you like check out what its true value should be by looking online. Check the internet for car values at Kelly Blue Book or Edmunds.com
At least you will know what the car should be worth. Next, add a $200 to $500 profit for the dealer. A larger down payment will help you get better financing.
Edmunds also has a car loan calculator which might be helpful.
Internet May Help Find that Loan
There are also dealer network systems on the Internet. They list good and bad car dealers, but you may be able to purchase a car by filling in the forms to find out what a particular dealer offers you. There are no fees involved.
Application services on the Internet also might be helpful. You are required to fill out your in-depth financial information, and this involves multiple submissions of financial information to potential lenders. You may hear from several lenders willing to make the loan
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By following the above methods you will have the best chance of getting a good car at a reasonable value with a decent interest rate. Just because you have bad credit doesn't mean you don't deserve a good car and a good car loan.
Sometimes, if you are in the middle of a bankruptcy, or have no money down you may have more difficulty finding a reasonable car loan. Even is your first attempt at financing fails, keep trying and as soon as possible do every thing you can to improve your credit. Help for bad credit car loans is possible, but sometimes it takes persistence.
The copyright, renewed in 2018, for this article is owned by Pamela Oglesby. Permission to republish this article in print or online must be granted by the author in writing.