What to Expect in a Bad Credit Auto Loan

If you’re an American in debt, at least you’re not in debt alone. Many people have faced short-term economic crises at the moment, and lenders are responding with more alternatives for people with bad credit. So even if you have extremely bad credit, you may still qualify to get a bad credit auto loan.

Depending on what type of bad credit auto loan you choose, you may find it to your advantage, or that it also has the potential for sinking you even deeper into debt. These days, you can find a bad credit loan everywhere you look, and you may at first feel surprised to find that, despite your bad credit, bankruptcy, or repossession, you will still qualify for many bad credit loans. However, before you sign your name in ink to anything, make sure you have analyzed your current economic situation and have determined that a bad credit loan will help you in the long run, and not further hurt your bad credit.

People call a bad credit auto loan a “subprime auto loan” for good reason. With any bad credit loan, you will always have to pay a larger down payment and a higher interest rate. Though you will find a wide variety of exactly how much a bad credit loan will require in these two areas, the down payment usually ranges from 20 to 50 percent of the total payment, and the interest rate can range from 12 to 26 percent. In general, try to pay as much as you can up front on a bad credit loan, even if it seems a difficult compromise at the time. The larger down payment you can make, the lower you can whittle your interest rate. If possible, try to pay no more than 18 percent on the interest of your bad credit loan, and you’ll save a good deal of money.

Compared to a good credit auto loan, a bad credit auto loan will also permit you a much shorter time to pay off the loan (this time is known as “amortization”). Lenders take a greater risk when lending to people with a history of bad credit, and so they have to make more restrictions to protect their own safety. So usually a bad credit loan will have a two to four year amortization, while a good credit auto loan might extend the time to five to seven years. This means that before you decide on a bad credit loan to help you pay for your next car, make sure you know you can pay it off in the required time. If you can pay it off, it will increase your credit rating so you will qualify for easier loans in the future. But if you end up falling behind on a bad credit loan, not only will it only worsen your credit rating, but you will also have to face an even more difficult payment plan. People can easily dig themselves even deeper into debt with a bad credit loan, and you can see how it turns into an endless downward cycle.

The Internet makes it easy to look for a bad credit auto loan that will work best for your situation and your credit history. If you have just begun looking for a bad credit loan and don’t have a particular car in mind, you might want to try the dealer network system. One of these Web sites will ask you to submit your financial information; then it will automatically pass this information on to a dealer for no fee. In general, there is no general rule as to whether or not these sites will offer good deals, but instead the quality will depend on the individual dealer. If you do have a car in mind already, you might want to try one of the application services on the Internet. Here you also enter your financial information, and the website will automatically submit multiple copies to potential lenders who compete for your business. This option will save you time, though it is not completely comprehensive either.