Bad Credit Car Loan? It is Possible but Be Careful!

Bad credit no longer means bad car or worse, no car! Bad credit car loans are available and although they come with a few warnings, they are a way of getting into a new car and hopefully back on the road to a higher credit rating.

Interest rates are generally higher for bad credit car loans - makes sense as the finance company is taking a risk so they should be paid well for their troubles. With this in mind, what are the possible scams or warning signs of a bad bad credit car loan?

• Dealerships are happy to help out with auto financing and many offer car loans to high risk buyers. But keep in mind that dealerships are out to sell cars and make money, not help individuals repair their shaky credit history nor make sure that the vehicle they are buying fits within in their budget. If the deal sounds too good to be true, listen to that little voice in your head and back away from the sale - that car salesman is selling you more then just a car!
• Before you sign anything, find out if there is a penalty for paying the loan off early. For example, if your loan is over 48 months and you make your payments on time, your credit rating will improve. You can then refinance that same car loan through either the same company or through another financial institution at a lower interest rate. This is a common practice and how the bad credit auto loan lenders get around it is to charge an enormous penalty for paying the loan off early. Buyers beware on this one!
• Independent auto finance companies that offer bad credit car loans usually prefer to first approve the amount of the loan before the individual actually steps foot on a car lot. This actually helps the buyer - you know exactly what you have to spend and now you are in a position to haggle with the salesman to get the best price possible on a vehicle.
• If you decide to finance your bad credit car loan through the dealership, before you take the car home make sure that the loan has gone through. One scam dealerships have is to send the buyer home with the car, wait two weeks and then phone them up to say that the loan did not go through Oh but good news, they have found another lender that is willing to take on your debt and of course, at a higher rate of interest. Not much you can do at this point but take the hit and sign the new paperwork at the higher rate. Ouch!
• Dealerships also do such notorious things as charge more per month by hiding dummy charges within the payment. This can cost hundreds of extra dollars by the end of the loan and most buyers are not aware they were ever cheated. Use an online loan calculator to figure out exactly what you should be paying and if your numbers match their figures. If there is a discrepancy, ask them why and get them to make the necessary changes to the loan.
• The last warning about dealerships is in regards to your trade-in. Most dealerships are happy to take a trade-in and they consider them as a down payment of sorts. If there is a lien on that trade-in, it is up to them to pay it off within 10 days - that is part of the deal. However, sometimes they do not and because your name is still on the original lien, you are now responsible for that debt, not the dealership. That one will have you paying two car loans off even though there is only one car in the driveway - be careful!

Bad credit car loans can be a blessing or a nightmare! Read the fine print and keep yourself in the driver’s seat to avoid scams or being taken advantage of by an unscrupulous lender. Remember that although you may need the loan and vehicle, they need your business and a contract should benefit both parties, not just the lender. You know walking in that you are going to be paying a higher rate of interest so accept that part of the deal and fight for your rights regarding the rest of the bad credit car loan - you’ll be happy you did!

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