Beware of Bad Credit Auto Loans

Are you desperate to find a new and reliable vehicle but know that your credit is less than satisfactory? This can definitely be a problem when trying to purchase any vehicle requiring financing. However, unlike in the past where you would be required to either get a co-signer for your loan or "about-face" out of the building, now you can take out your own loan. Sounds great, right? Well, it's semi-great because there are definite risks to taking out a loan from a business that has every reason to believe you won't make your payments. In one way or another, they will be looking to penalize you for your credit shortcomings - and this could add up to lots of money spent by you. So if you're looking for an auto loan and have bad credit, be sure to read this article to learn more about the basics of bad credit auto loans. You could save yourself money and unnecessary obligations.

What Are Bad Credit Auto Loans?

A bad credit auto loan is a loan that auto dealerships and finance companies will distribute to individuals looking to purchase a vehicle but don't have great credit to back their ability to pay off debt. Because extending credit to someone who has an irresponsible payment history poses a risk to the company offering the loan, they want to make sure they can get as much benefit up front as possible - meaning you will probably suffer from high interest rates, penalties, and even small-print clauses meant to "extort" more money from you.

While it is true that no matter where you go for a loan, you will probably be subjected to higher interest rates when holding a low credit score or a previous bankruptcy, it is definitely not your obligation to take on the unnecessary abuse that often accompanies these loans. So below, I've made a short list of things you'll want to look out for if you feel that taking out a high-interest, bad credit auto loan is your only option.

High Interest Rates

It is almost a given that if you hold a subprime credit score, your interest rates will be higher than those with good credit. In a sense it is fair, only because there needs to be some type of reward to those who make the effort to maintain good credit. However, while your interest rate may be higher than others, it's only so high it should go. But unfortunately, there are many times that the auto dealers will throw in their own penalties or miscellaneous rates then stick them in with the interest rate, telling you that because your score is bad, this is what your standard interest rate will be. If you don't know any better, you will believe what the dealer is telling you. But if you conduct your own research, you'll learn that their cheating you out of precious dollars.

So what can you do about it?

When searching for your vehicle, visit multiple dealerships to see what interest rates they are charging. Ask questions about these interest rates, and even let them know if another dealership is offering lower rates. In other words, hold them accountable for being business people with a responsibility to the customer.

Also, you can check online with companies like Capitol One and Lending Tree that may offer you a lower interest rate loan for your car. If approved, they simply send you a blank check, let you purchase the vehicle in full, then you pay back the loan to them. This helps you avoid penalties and other charges from the dealership because in their eyes you're purchasing the car in cash.

"Subject to Approval" Financing

This is definitely one to look out for. Believe it or not, there are dealers out there who that basically means the entire time you've discussed a monthly car note with the dealer, in the back of his head, he knew he was going to raise the price.

How can he get away with that? Easy! In small print, probably on page seven of your contract was a clause stating that your agreement was based on "subject to approval" financing. So after you've shaken the weasel's hand and driven your car home knowing what you would pay for your monthly car note, you get a call (maybe a few days later) letting you know that after reviewing your credit score, your interest rates were being raised and your car note would increase. Is it unfair? Yes! Is it legal? Well, you signed the paperwork, didn't you? This is why it is so important that you read everything thoroughly before you sign. And to be honest, just expect that with a bad credit score you will have to read that much more and ask that many more questions just to be treated fairly. It's just the way it is.

By educating yourself on the ins and outs of bad credit auto loans, you can save yourself a lot of the money and stress associated with working with shady dealers. Of course, the first preference would be to work on getting your credit straightened out before taking on a new major bill. But if you must purchase a car before you can clean up your credit, you'll be armed with tools to help you make the best decision possible for your pocketbook.