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Get an Auto Loan with Bad Credit

It is possible for a person to get an auto loan with bad credit to finance the purchase of a vehicle.

It is possible to get an auto loan with bad credit because auto loans are secured loans. In an auto loan, the vehicle itself is the collateral. If the person doesn’t pay the auto loan, the lender can simply repossess the vehicle financed.

Limitations to Bad Credit Auto Loans

Even though it is possible to get an auto loan with bad credit, people with very bad credit will find their car buying and financing options limited.

Lenders will generally charge a very high interest rate on auto loans with very bad credit. This rate can be between 7 and 18% depending on conditions and terms. Many car dealers will give buyers a lower rate if the buyer is able or willing to make a down payment. Those who can’t make a down payment will usually have to pay a higher rate.

Buyers with very bad credit may also qualify for smaller loans especially if they have a limited source of income. Some buyers will have to settle for a cheaper car or a used vehicle even if they get an auto loan with bad credit.

Car Buying Options Limited

Car buyers who are trying to get an auto loan with bad credit may find their options limited in other ways as well. Since the amount of the loan is limited they maybe restricted to cars of a certain price.

Many car buyers with bad credit are restricted to buying used cars or cheaper new cars. In many cases dealers will try to unload vehicles they can’t normally get rid of on people with bad credit.

The way to get a good car when shopping for an auto loan with bad credit is to shop around. Avoid dealers with limited selection and try to avoid shops that specialize in bad credit financing.

If you are forced to buy a used car try and get from a dealer that will cover the service costs. This way the dealer will have to pay for repairs to a clunker or replace the clunker with another vehicle. Some dealers even advertise that they will service used cars they sell. Always read the service contract to make sure the dealer is legally obligated to living up to its promises.

Requirements to Get an Auto Loan with Bad Credit

The main requirement a person will need to get an auto loan with bad credit is to prove they have a steady source of income such as a job, pension or government benefit. Most dealers will work with a person with bad credit who has a good source of income. They maybe willing to lower the interest rate or give better terms to a person who agrees to make higher payments.

Those without a steady source of income will probably have to come up with a down payment or a trade in. A trade in is another car that the dealer will take in lieu of a down payment. To trade in a car you will have to clear title to it. Some dealers will take cars that are still being financed in trade in deals.

A down payment or trade in can reduce the cost of the car loan and could get a borrower better terms.

It is possible to get an auto loan with bad credit to get a car loan; however, such a person will have to expect to pay higher interest and face restrictions on such loans.