If you have bad credit, it is still very possible to get a car loan. The problem is that not everyone intends to help you with that. Some offers may seem surprising at first glance, but if you look at the fine print, you may find yourself in an even worse financial situation. There are some elements that you should consider when completing a car loan if you have bad credit. The most important thing to consider would be the sale price and the interest rate. People commonly make the mistake of just looking at the monthly payment instead of the final cost to fully finance a vehicle. This varies greatly in the three main types of car loan dealers designed for people with bad credit. They are the following:
- Main subloans
- Buy here, pay here
- Rent with option to buy
Each of these car loan dealers has its pros and cons and can be a good option depending on your financial situation. Let's discuss all three, expose the pros and cons and a brief summary of what to look for with each type. Let's start!
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Subprime lenders are lenders that specifically target people with bad credit. What subprime means is that you have a credit score that is considered fair or bad. This would be for people who have a credit score that is in the lower range of 600 and below. It seems that it would be the best option for someone with fair or bad credit to get a car loan, right? Unfortunately, this is not always the case. Sometimes, interest rates on these types of loans are very high and expensive. What this means is that the first year or so, you will be making payments almost entirely with interest only if you make the recommended monthly payment. The principal amount will hardly be reduced until later with consistent payments.
An example of this would be the loan I got from my car before fixing my credit. I was new to the car dealership game and didn't educate myself properly before making a purchase. The total car loan was approximately $ 12,000. The interest rate on the loan I obtained was 24% (this is VERY high). This extended over 4 years. Over the course of 4 years, I made only the agreed monthly payment. At the end of the deal, I spent $ 18,000 on the vehicle. This means that I paid 150% of the value of the vehicle (not before depreciation). Thank you for saving him from making the same mistake (see how I did it to fix my credit) These are some of the pros and cons of high risk loans.
Pros and cons
- They will literally accept almost all applicants for some type of car loan.
- Good variety of cars to choose from
- It is not limited to unwanted vehicles.
- Loans can be used in most traditional dealers
- Most of these loans have very high interest rates.
- Some dealers will restrict you to buy only certain vehicles with this loan
- Extended loan terms for a low payment that may end up costing more
There are some good subprime lenders that really have the best interests of the customers at hand. If you follow that route, try to find one that offers an interest rate of less than 10%. This will require some searches on your part, but the objective is to obtain a loan with the least amount of interest within a reasonable time. Not all high-risk loan companies are willing to look for you, but be sure to investigate before going to the dealership. Stay within your budget and get a car that you can afford without having to go to the bank.
Buy here, pay here
Buy here, pay here, dealers are another viable option for those with credit problems. What you buy here, you pay here means that you are financing the car directly through the dealership and not through a bank or financial institution. This allows the concessionaire complete control over who approves or denies a loan. While this seems attractive, be sure to read between the lines. Sometimes, the offers really are too good to be true. Let's see some pros and cons with these types of loans.
Pros and cons
- The dealership is in charge of financing, which means that more financial situations will be eligible for a car loan
- Usually, you will pay little or nothing for the loan
- The process of obtaining the loan is quite simple compared to a traditional dealer
- Most offer a short period of time in which you can return the vehicle without obligation
- Not everyone buys here, they pay here, dealers report to the 3 main credit agencies
- Vehicle tracking devices or GPS are sometimes installed in vehicles due to the increased risk of loan default
- Interest rates on these vehicles are usually around the legal limit (VERY high)
- Many buy here, pay here, dealers do not offer guarantees on the vehicles they sell
- Payments and terms are usually high or unfavorable.
The vehicles in these dealerships are predominantly used, but in some cases they store new or newer vehicles. While the vehicles are mostly in good shape, there have been quite a few reports that "lemons" were bought to buy it, pay here a lot. Lemons are cars that seem to have a good value (cosmetically) initially, but they break down or have repeated defects shortly after purchase. If you are going to buy a vehicle in a purchase here, pay a lot here, I recommend that you inspect the vehicle by a trusted mechanic. At the end of the day, it is your money to lose in this case.
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Rent with option to buy
If you have no credit and feel that you are not financially stable enough for a full auto loan, then lease-to-purchase financing is a good route to explore. While the payments are similar in size to a subprime or purchase here, pay here the payment, you are still essentially making payments in the car without being linked to your credit. What this means is that you can rent the car with the intention of owning it (making consistent payments), or you can make payments only as long as you need it. This is ideal for those who are not yet financially stable and need a vehicle for a period of time. Here are some pros and cons of the financing of rental vehicles with option to purchase.
Pros and cons
- You do not have to pay interest on the vehicle since you are not borrowing money
- Recoveries will not affect your credit, as credit agencies are generally not informed
- The credit score will not prevent you from obtaining the vehicle of your choice
- There will be no negative effect on your credit.
- Usually, the amount you pay for the vehicle is much more than the actual value of Kelly's blue book
- It will not help your credit in any way since they do not inform the credit bureaus
- The frequency of payment is much higher than what you would experience in a purchase here, payment here or high-risk lender loan
Cars offered through these types of loans tend to be used with somewhat high mileage. However, most are well cared for from a cosmetic point of view and mechanically in good condition. While you won't find something like a newer model Audi in a rental location with an option to buy, you'll find some quality and durable vehicles that will meet your needs. Most people are generally satisfied with their experience in this type of car dealers. As mentioned earlier, you will pay a premium for the vehicle of interest, but if you have a not-so-good credit and it is not financially stable, this would be a good route for reliable transportation.
Is your money
At the end of the day, it is your money for the purchase of a new car. Choose the type of car loan that best suits your financial situation. Remember, you want to get the most vehicles for your money. Try to get the vehicle you want as close as possible to the price of the Kelly Blue book (visit www.kbb.com to see how much a vehicle is worth). If your only option is a loan with high interest rates, try to negotiate a contract in which you can pay more than the required monthly payment (make sure an additional amount will be applied. Make sure that the additional money will be applied at the beginning. Anyway, you are reducing the amount of money you are paying for interest and you will pay the car long before the loan term Thank you for visiting The Credit Dojo As always, we hope you learned something!
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