Home > Auto Loans >Bad Credit Car Loans > Bad Credit Car Loan: The Pros And Cons Of Auto Financing Options
Bad Credit Car Loan: The Pros And Cons Of Auto Financing Options |
|
Low sounding rates on new and used bad credit car loans as offered by some dealerships might be very alluring as the prospect of paying 0%, 2% or 3% versus the current average rate of 7% or 8% is indeed very tempting. However, you should know that unless your credit rating is in the top bracket, you wouldn't qualify for such offers. People, who go to the dealership, hoping to get 0% financing, actually end up paying a higher rate. Dealers can manipulate rates It is certainly very convenient to obtain a bad credit car loan through the car dealership that normally promises the best available rates. However, that may not be the case as the dealers do not put up the money themselves but they only arrange financing for you and in the process they add their own percentage points to your loan rate. On an average this adds at least $1000 to the cost of an individual's bad credit car loan and in total this practice costs consumers up to $1 billion annually. About 25% consumers get affected with this mark up. As the dealer's interest in earning commission from any additional interest rates that they add on to a bad credit car loan is in direct conflict with the interest of the consumer, the dealers justify it as compensation for arranging financing and handling paperwork. Although there are no laws monitoring such mark ups, some voluntary improvements are being made by auto companies and groups. In February General Motors declared that dealers could only mark up rates 3%. Members of the National Automobile Dealers Association must now tell buyers that interest rates are negotiable. Finance alternatives Credit unions - This is a good alternative as the credit unions have been working with dealerships to offer bad credit car loans. Members can now apply for financing with the credit union at a dealership as about 1300 of the nation's 9,500 credit unions are now doing indirect lending. Such credit unions have a list of dealerships that they recommend to their members. The dealers, on their part, provide loans to the members at the credit union's interest rate, without a mark-up. They earn their profit through the credit union's finder's fee of $50 to $200 and by convincing the consumer to avail of the additional insurance products. Banks - Although the bank rates may not be the cheapest, at least they are transparent which makes it easy to compare rates. Home equity loans - If there is sufficient equity available in your home, you can easily obtain the money you need through a home equity loan which attracts low interest rates and is tax deductible. This way, you won't need a bad credit car loan to finance the purchase of your car. Which is the best option? There is no clear-cut answer to this question. The best course of action is to shop around for the loan rates and do necessary research before approaching a dealership. Once you are equipped with proper knowledge, it is less likely that you would fall victim to rate mark-ups. To negotiate the best price on a car without worrying about financing, you should become pre-approved for a bad credit car loan. You can choose any option that appeals to you but you must avoid loan stacking, which means that if you are trading in your current car for a new car and if your current car is not worth enough to pay off what you are owing on your current bad credit car loan, the car salesmen will offer you another loan that will pay off your old loan and finance your new car. This is called stacking, as you will ultimately owe more on your new car than it is actually worth and you will be stuck with a loan of up to 120% of the new vehicle's purchase price. You must educate yourself properly lest you fall in such a situation. You can avoid such a situation by agreeing to repay your bad credit car loan in four years or less. |
|
| ------------------------ |
|---|
|
|
| ------------------------ |
|---|
|
|
|
|
| ------------------------ |
|---|
|
| ------------------------ |
|---|
Custom Search
|
| ------------------------ |
|---|
|
|
| ------------------------ |
|---|
Consumer Alerts | About | Bookmark Us | Contact | Espanol | Privacy Statement | Copyright | Terms & Conditions | Financial Widgets | SiteMap
Copyright © 2006 Credit Loan, LLC. 235 APOLLO BEACH BLVD, STE 218 Apollo Beach, Florida 33572 All rights reserved.
Disclaimer: The content provided on CreditLoan.com is for informational purposes only; do not make any financial decisions based on its content. Financial decisions are personal, based on an individual's situation. Consult with a financial professional before making any financial decisions. CreditLoan.com is not liable for your financial actions.
