Bad credit car loans are not impossible to get, but they are a little different than a loan for someone with good credit. Here are a few things you should know about getting a car loan with less than perfect credit.
Higher Interest Rates
If you have bad credit and are looking for a car loan, you can expect to pay as much as 10% above average on your interest rates. With bad credit, you are a higher risk for the lender, but after you have made your payments on time for a year or so, you may qualify to refinance at a lower rate.
Higher Down Payments
A lender uses the down payment as a guarantee for the loan. The more you put down, the less likely you are to default and loose that investment. With bad credit you can expect to have to pay a higher down payment.
With bad credit you may be limited on the kind of car you are going to purchase. Most dealerships will have a selection of cars available specifically for those with bad credit. These cars usually have higher mileage and cost less money. This makes it safer for the lender as they won't have to recover as much later if you default on the loan.
The terms on bad credit car loans will usually be shorter than regular loans. It's common to see a bad credit car loan financed for 24 to 48 months. This may make your monthly payments higher.
Second Chance Dealers
Often times you can find dealers that specialize in second chance, or bad credit car loans. These lots will generally finance the cars themselves. You will make your payments directly at the car lot. Many of these dealers don't report to major credit bureaus, so just check to make sure they do before you buy.