Auto Loans For People With Bad Credit

What is the difference between a good credit score and a bad credit score? A good credit score means that the person who has borrowed funds made all his or her payments according to the terms the lender and borrower had agreed to. This person also doesn't have high revolving balances on credit cards and other credit accounts. For a lender who provides auto loans, it's obviously a lot less risk to loan to someone who has been financially responsible in the past.

A bad credit score means that the person who had borrowed money defaulted on the terms that he or she had agreed too with the lender. Defaulting on the terms set by the lender can mean that the borrower may have paid monthly installments late, or it could mean that payments weren't made at all.

Bad credit can also be caused by other issues including having high balances on their credit accounts. For example, if you have a credit card that has a $10,000 limit, you don't want to have $8,000 on that card. Having a balance that's 80% of the limit will definitely hurt your credit score.

Whenever a person has bad credit, they become a high risk for any lender. Very few lenders want to lend money to people with a bad credit score. Because a bad credit score demonstrates a poor track record of late payments and/or no payment at all, lenders view a person with a poor credit score as very high risk.

There are reasons as to why a borrower has a poor credit score other than late payments and default on the loan.  Many borrowers have poor credit due to circumstances beyond their control.  Lenders also understand that this misfortune takes place.  Lenders have now made it possible for many borrowers who have poor credit to be able to borrow money.  If you desire to borrow money for a new car and you have bad credit, you do not have to worry because there are many lenders that will offer auto loans to many individuals that have poor credit. 

There are quite a few dealers out there that specialize in providing the consumer with auto loans for bad credit. They often advertise on the television and radio. They sell used cards and as long as you have a down payment, they will generally provide you with a loan.

Some of the requirements for a borrower with bad credit desiring to get an auto loan of this type are: the borrower should have a permanent monthly source of income. The borrower must have a savings account and be at least 18 years or older.

Under these circumstances, this type of lender does not even check the credit score of the applicant. Lenders decide how much money they will loan the borrower based on monthly income, monthly expenses, and how much money the borrower can repay each month. Most lenders will finance 85 percent of the cost of the auto loan.

The interest rate is based on the amount of the loan, terms of payment, and monthly installments. The monthly installment is also decided on how much the loan is and for how long the term will be. In fact, the monthly installment is decided by the applicants level of income and monthly expenses. It is also decided by how much the applicant is comfortable in paying each month.

In all cases that an applicant has poor credit, the automobile is used as collateral against the loan that is given to the applicant. The title of the automobile will remain in the lender’s name until the loan is paid in full. After the loan is paid off, title will then be transferred in the borrower’s name.

Generally speaking, it's a lot more difficult to get a bank loan with bad credit. If your credit score is under 650, you should still go talk to the bank, but chances are they are going to want you to get a cosigner for your loan, even if you have a job and a solid income.

Bank loans of this type are preferable to dealer loans because a bank loan will have a much better interest rate. If you can find a cosigner that has good credit your interest rate may be as much as 10% lower than a dealer loan would offer. That's going to translate into a huge difference in how high your payment is going to be.

If you can't find a cosigner and you can wait for a few months, you may be able to raise your credit score by quite a bit. Here are some of the easiest ways to raise your credit score:

1. Pay down your credit card balances. If you can pay them down to zero, it will make a HUGE difference in your score.

2. Make on-time payments. It might seem now like you've messed up way too much, but it's likely that you can fix your issues if you commit to change now. I remember when I had bad credit it seemed like I could never get out of it. Now I have outstanding credit.

I have created some valuable resources on other types of loans here:

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