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Bad Credit Auto Loan: Avoid Subprime Lenders Direct Financing Is Better |
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Before taking sub-prime
bad credit auto loans high-risk borrowers should be careful and should watch out for many things. People with damaged credit, also known as sub-prime borrowers, offer a higher risk to the lenders who deal with them and who are known as sub-prime lenders due to which these lenders charge higher interest rates on the bad credit auto loans that they offer to such borrowers. Nothing comes for free and any special deals for borrowers of car loans with poor or no credit have to come attached with some strings. Small-time lenders or questionable dealerships that provide bad credit auto loans normally take advantage of gullible poor credit borrowers. So, if any deal seems to be extraordinarily good, there must be a catch to it. Such catches normally involve inflated car prices, a big down payment, and a high interest rate. Moreover, one should be careful of super-low introductory rates and large rebates as there may be a large price tag on it at a later stage. You should also look out for pre-computed bad credit auto loans as the interest on these loans is computed such that whenever you pre-pay (or sell your car), you end up paying more toward interest (and less on the principal) than you should. It is not very wise to take a long or large bad credit auto loan as you'll be liable to pay a high interest rate on a purchase that is rapidly depreciating. You should remember that relatively new (two- or three-year old) moderately priced used cars are best suited for bad credit auto loans as you won't need to pay a premium for credit repair work or even for auto repair work. In view of the above pitfalls of sub-prime lending, it is better to set up a loan with an independent lender, which is also known as direct financing. For a poor credit borrower, direct financing is a good bargain as the emphasis can be more on the cost of the car rather than on the Bad credit auto loan and the borrower need not take the dealer's only offer if he doesn't like it. Direct financing from a reputed lender ensures fair reporting of timely payments to the credit bureaus, thereby leading to strengthening of your credit profile as compared to dealing with unscrupulous lenders or dealers who avoid reporting timely payments thereby keeping the credit score low and the interest rate artificially high. Even direct lenders require that the vehicle on this type of bad credit auto loan be fairly new (five years or younger), and that it have low mileage (around 60,000 miles). Moreover, the interest rate would also be substantially higher (up to three times) than what would be applicable to a good credit borrower. Even the car would have to be bought from a franchised dealership as the bank would not want to end up with a bad loan auto loan because you bought a bad car. You should weigh the offers of the lenders who promise that they can get around the above drawbacks. The most important thing, however, is to be able to manage your new debt responsibly. If you have the right lender to back you, financial tension will be a thing of the past. Online is best! Since getting the right dealer is so important, we must tell you as to where to get them. The best place to look for them is online. A few clicks on a few buttons will put you in touch with a plethora of lenders providing you with the opportunity to compare their rates and other terms and conditions. Moreover, online applications are fast and you do not have to make any commitment. It might take you a mere fifteen minutes to get a credit decision and armed with the cash in your hand you will be able to shop at the dealership for the car of your choice. |
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