Expected Terms of an Auto Loan for Someone with Bad Credit
When you suffer a setback with your credit, your entire financial future can be affected. If you are in the market for an auto loan chances are the terms and conditions to obtain that loan will be different for you because of bad credit than it would be for someone with good credit. The expected terms of an auto loan for someone with bad credit can be difficult but not impossible to overcome. Just know what to expect before you make the deal.
Offering Sub Prime Auto Loans
You can expect to pay a higher interest rate for the loan. Most car dealers are willing to give you a sub- prime auto loan at a high interest rate to cover their interests in you and the vehicle. That interest rate can be anywhere from 14 percent to 20 percent. A person with good credit could get that same loan at a 6 percent to 8 percent interest rate. The car dealership will also shorten the loan term usually from 12 to 36 months instead of allowing you to pay over a period of 6 years or 72 months you will have to repay the loan in 1 to 3 years. This will increase your monthly payment for the vehicle substantially.
There are also other factors to consider such as the amount required for the down payment. Sub prime auto loan lenders usually want an amount for down payment between 30 percent and 50 percent of the value of the car. In this way they are securing their investment because you will be highly unlikely to default on a loan with such a huge down payment and investment in the vehicle to start with.
The payment schedule is also something else to contend with. When you have good credit, lenders usually trust you to make your monthly bill payment by mail, but bad credit auto lenders want the payment directly from your bank account and those payments can be scheduled to occur every two weeks or according to your pay cycle. It may be a good thing because you are not required to pay such a lump sum every month but can spread it out over the course of two weeks, and the added convenience of having the funds withdrawn from your account electronically can save you time and ensure that your payment is never late.
These a few of the expected terms of an auto loan for people with bad credit. It does not have to be this way forever, only until you can re-establish your credit rating and then you can trade your vehicle in for something you really want and at a better interest rate when your credit improves.
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