Getting a poor credit auto loan has always been easier than getting many other loans when the customer has a low credit rating. In general the risk implied by having a low credit score is offset by giving the borrower a higher rate of interest, higher monthly payments, and shorter amortization period (the time it takes to pay off the loan if every payment is made in full and on time). However, if the borrower is willing to accept these terms, auto loans for people with poor credit are fairly easy to get.
Nevertheless, the borrower should be aware of tactics used by unscrupulous car dealers to exploit the bad credit market. This often involves inflating the price of the vehicle and then offering a proportionally smaller initial down payment. For example, assuming the vehicle’s actual resale value is $5,000; these dealers would inflate the price to $10,000, but keep the down payment amount the same. Assuming the initial down payment for the car at $5,000 was $1000, or twenty percent; the payment would remain the same, but once the price was inflated it would only equal ten percent of the purchase price. So at first glance the borrower appears to be getting a better deal since the he is only paying ten percent down on a car despite having bad credit. However, obviously the car is being sold at much more than it is worth, and once the borrower signs the papers he is locked into this.
Interestingly, since every year car manufacturers are under pressure to sell their newest model, buying a new car may work out to be a better deal for people with bad credit than buying an older used car. Those dealerships that finance their car loans through lenders associated with the manufacturer are often under significant pressure to sell the newest models, so they provide incentives which usually result in lower interest rates and longer amortization periods. As a result, they offer some very good auto loans for poor credit. Although a person with bad credit will still be expected to pay a high interest rate, some of the effects of this can be mitigated by purchasing new model cars. This has been especially true since the economic downturn that began in 2008. People with bad credit can get some excellent deals by purchasing brand new cars as opposed to older, used ones.
A number of new, Internet-based options have also come into their own recently, offering more options for poor credit auto loans. One of these options, the dealer network system, works by taking the potential customer’s basic financial data and then sending it out to the car dealerships that belong to the network. If a dealer is willing to work with the borrower, the two are put together to work out the details. Another Internet option is the use of multiple submission websites. In this case the potential borrower fills out a comprehensive financial questionnaire, which is then transmitted to many different lenders at the same time. Ideally the borrower should receive at least a few different offers and then they can fight amongst themselves to give the borrower the best deal. Getting an auto loan with poor credit is not difficult at all!
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