Bad Credit Used Car Loan

For the right price, even with bad credit, most people can obtain a loan to buy a new or used car. Bad credit makes a difference in the cost of a loan, the terms of a loan, and the time and effort to obtain a used car loan. Bad credit in the current economic climate makes financing a vehicle more challenging than ever, even at a time when car dealers are more anxious than ever to move inventory.

People with poor credit should plan to make a higher down payment, typically 15-20% on a used car; bad credit risks can expect to pay substantially higher interest rates. How high is too high? Unfortunately, people with poor credit are targets for those charging usurious interest rates. Do not be taken advantage of if you need a used car loan, bad credit is no excuse for predatory lending practices. Most State Consumer Affairs Offices have maximum interest rates and vehicle closing costs for legitimate lenders available on their web site. Check those for your state before agreeing to a high-interest loan.

Avoid costly scams that steal your money and your personal information. The old adage, “if it sounds too good to be true, it is” applies to obtaining a used car loan with bad credit. The U.S. Federal Trade Commission warns consumers: beware of lenders who proclaim “bad credit is no problem” and lenders who require upfront fees prior to loan approval. Legitimate lenders are always concerned about your credit rating, and they disclose their fees fully in advance. Legitimate lenders also take their fees out of the loan proceeds, so do not fall prey to popular, advance-fee payment loan scams.

Do not pay an upfront fee to obtain a loan, and do not provide your social security number or other personal financial information to a potential lender until you have checked their credentials thoroughly. The Better Business Bureau, the Federal Trade Commission, and your State Attorney General’s office are good sources to determine a lender’s authenticity.

A good idea is shopping for a loan even before shopping for a used car. Bad credit makes it more challenging to obtain a used car loan, so check with reputable online lenders, banks, credit unions, etc. to assess your prospective lender choices, loan terms, and interest rates. Car dealerships are usually the most expensive financing option, so try them only after you have checked out other financing options.

Know the value of the used car before agreeing to a purchase price. Consult the Kelley Blue Book, available online at www.KBB.com, to determine the value of any used car you are interested in purchasing. Separate the used car price negotiation from any trade-in value discussion. To assure their profit margin, car dealers often raise or lower the trade-in value they offer depending on how the overall sale price negotiation is going. Therefore, you should negotiate the car price separately, as if there is no trade-in.

Ask about installing a “Starter-Interrupter” Device and GPS on the used car. Starter-interrupter devices and GPS provide a lender more security when loaning to those with bad credit. A starter-interrupter is a small device attached to a used car’s ignition, and if a debtor is more than five days late with a car payment, the device prevents the car from starting. GPS permits the car to be easily located in the event repossession is necessary. These two devices provide lenders much greater security when making a used car loan. The more secure a lender feels about making a used car loan to bad credit risks, the lower the interest rate for the loan.