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Do Your Research First Before Going To A Bad Credit Car Loan Lender |
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These days bad credit car loan ads are
increasingly bombarding debtors and bad credit borrowers with the claim that they can buy a car irrespective of how bad their credit may be. Even though most of these ads may have some truth, there are a number of dangers in dealing with bad credit car loan lenders. The direct finance business is very similar to a good credit car loan from your local bank except for borrowers of bad credit car loan being charged a larger down payment and higher interest rates. All local lenders will naturally not offer any car loans to borrowers with bad credit. Usually debtors seeking bad credit car loan are required to pay between 7%-18% interest rates. Amortization options, or the time period for paying the loan in full with all regular payments being made, may only be between 2 to 4 years in contrast to good credit borrowers who can extend their auto loans to as much as 5 to 7 years. Sometimes amortization schedules and higher interest rates combine in payments substantially more than for those with perfect credit. Fortunately if these loans are paid on time they can prove useful as tools for rebuilding credit. The dealers advertising their readiness to accept bad credit car purchases often end up financing the deal through one of the direct lenders. Dealers financing these bad credit car loans internally may occasionally use a combination of external financing source through guarantee on a part of the loan or letting a part of the loan remain unfounded until certain loan payments are made. Bad credit car loan lending has its greatest abuses in dealers who artificially inflate prices of cars as well as the interest rates for the financing. Dishonest dealers specializing in bad credit purchases use a common tactic for a car with a normal price of $3,000 in inflating the price to $6,000, taking $1,500 down and financing the rest at 24%-26%. The result is that in addition to the borrower being under obligation to a contract with sky high interest rates, the underlying debt and price of the car have no proportion to the true value of the car. The borrower eventually defaults on the bad credit car loan, thereby damaging their credit even further. Or else, they complete the contract before which they could have paid twice or three times the amount they would have paid for the same car if purchased from a legitimate dealer at a legitimate price. Buyer beware: caveat emptor. Some of the bad credit car loan dealers advertising to poor credit purchasers could also be honest and forthright. Knowledge is the best protection for the consumer. By researching the true value of the car being purchased, you can try paying only the wholesale cost with a $200 to 500 profit for the dealer. Only in extremely rare cases should you pay more than the retail price of the car. At times a bad credit car loan dealer for purchasing and financing a car can be advantageous to the buyer. Companies involved in the finance operation should make all their profit from the financing with the dealer also making a portion from the sale of the car. Sometimes the incentive for the dealer to sell the car may result in financing concessions or more relaxed guidelines. It's surprising how frequent this situation occurs in applying for a bad credit car loan with the intention of buying a brand new car. The sizable down payment can actually make it easier for borrowers to get bad credit car loan for a new car financed by the car manufacturers' own funding due to the company's incentive to sell the new cars. It is also to the advantage of the purchasers of the new cars that interest rates may be lowered in such cases. Generally newer cars mean lower interest rates than older cars with amortization being longer as well. Consequently the payment for purchasing a new car can be equivalent to, if not lower than the payment for purchasing a used car. Therefore use caution and research before initiating contact with the bad credit car loan lender. |
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