It is a common misconception that borrowers with spotty credit are not able to finance an automobile with this slow economy. With dealers struggling to sell their new and used inventory, and banks struggling with a decrease in new loans, the market has been at a stand still, enabling borrowers with bad credit to secure auto financing. Bad credit automobile loans are available, it is just a matter of securing a quality and reputable lender.
Even though banks are the most common place to secure an auto or home loan, it is not typical to find a credit union or banking institution that is willing to take the risk of financing an auto loan for people with bad credit. For these lenders that are willing to take a chance in financing a risky buyer, expect to walk in with a down payment of 20 to 50 percent depending on the severity of how bad the buyer’s credit really is. The interest rate will range anywhere from 7% to 22%, and in most cases the period of the loan, referred to as amortization, will generally range from 2 to 4 years. These shortened loans are due to the heightened risk, whereas a buyer with good credit could expect a loan at about 5% for up to 5 to 8 years. It is the price you pay for having spotty credit.
When dealing directly with the dealer, keep in mind they are generally working with a lender described above, just internally. Dealers have the ability to negotiate rates, as they make a profit in the financing department, for all of the loans they approve. So it may be in your best interest to deal with the lender directly so you do not have to haggle an interest rate. One thing to always research before accepting a loan is whether it is a simple interest loan or a compound interest loan. Loans which front-line their interest are not in the best interest of the buyer if they intend to pay off their vehicle early. You will realize you have paid all of the interest within the first half of the loan, meaning you ultimately will pay more then a loan that offers compounded, equally divided interest.
Aside from financing through large lenders, there are dealers who offer in house financing. These dealers do not contact third party financing and take on the risk themselves. It is more common for those who have recently went through bankruptcy or have a charge off or repossession on their credit to finance with this type of dealer. Though the interest rate will be high, and the loan periods low, you will more then likely find an in house auto dealer willing to finance you for specific vehicles.
Although you are not going to be approved for a Corvette or a Hummer, there are bad credit automobile loans available for a majority of borrowers. Do you research on your loan terms and make sure to make an educated decision before making a 2 to 4 year commitment.