Expected Terms of an Auto Loan For Someone With Bad Credit
If you are considering financing a new car, the expected terms of an auto loan for someone with bad credit can be, in a word, devastating. Let’s explain. As you know, since the downturn of the economy, banks are not willing to approve loans as they have in the past. The sub-prime mortgage crisis took care of that. As a consequence, banks are increasing interest rates, especially for individuals who have low credit scores or bad credit. Moreover, auto dealerships are following suit. Here are examples of what you can expect the terms to be when you are applying for an auto loan and have bad credit.
- Your interest rate can go as high as 23%
- You will be required to take out a four or five year loan
- You may be required to provide a high down payment
Now can you really afford that? Hardly! The bottom line is that the terms for an auto loan for someone with bad credit can be monumental and put a strain on your finances. There are better solutions to avoid this scenario entirely.
Fix Your Credit
Request a copy of your credit report from the three agencies: Experian, Trans Union, and Equifax. Also ask for your credit scores. Examine the reports carefully to determine if there are any items that need to be disputed. If your credit score is below 700, you need to begin paying down your credit until such time as you will qualify for a lower interest rate on your auto loan, require a lower down payment, and reduce the number of years to pay the loan. The last thing you want to do is to add another financial burden to your finances.
Don’t Believe Everything You Read Online
Now there are a myriad of online sites that offer better terms for an auto loan for someone with bad credit. Be careful! Not all of these sites are legitimate, and you could be paying even higher interest rates and perhaps fall behind in payments. If you really need a new car, think about leasing the car. Although this is not the best case scenario, a small down payment is required and the monthly payments are affordable. The downside is that if you decide to purchase the car after the lease is up, you will then be in the position of having to pay off the car in one lump sum or re-financing it for five years. Again, this depends on your credit rating and income.
A More Prudent Course of Action….
Would be to wait until you pay down your existing debt, check your credit score again, and if it is within the 700 or above range, you can feel somewhat confident that the terms of an auto loan will be more in your favor.