If your credit is poor, but you are in need of a car, you are not out of luck completely. Here are a few things that you need to expect when you have bad credit but need a loan to purchase a car.
Higher Interest Rates
If you have bad credit, don't expect to get a no or low interest loan. You are going to be facing higher loan rates than your counterparts who have better credit scores. Lenders charge higher loan rates to individuals with bad credit to ensure that they recoup as much of the loan as possible, even if you default on the loan. It is the price that you pay when you have shown that you have not been responsible in the past with loans or credit cards. Don't be surprised if you face interest rates on your loan that greatly exceed the internet rates that you are seeing the local car dealerships advertise.
High interest rates means that over the lifetime of your loan, you are going to end up paying more for your loan than if you had been given a lower interest rate. However, you can fight against high interest by paying off your loan before the loan term is up. For example, if you are facing 10% interest rates on a seven year loan, you can greatly reduce the overall amount you will pay by paying off your loan in three and half years instead of seven years.
Extremely Long Loan Terms
Next, when you are facing a high interest loan, you are most likely going to face longer loan terms as well. Instead of being offered a five-year loan, you may be offered a seven-year loan. A longer loan term will extend the amount of time that it takes you to pay off your loan and the amount of interest that you will ultimately pay on your loan. It may also make it seem like you are making smaller loan payments even though you are paying more over the long-term.
A long loan term is not necessarily a bad thing if there is no early pay-off penalty. If there is no early pay-off penalty, you can make additional payments whenever you want, and reduce the length of your loan.
Finally, sometimes when you have bad credit, you may be required to add extras to your loan. These extras generally include requiring you to purchase a warranty with your vehicle so that if anything goes wrong with your vehicle, you'll be able to maintain it and keep it up.
However, you are not required to purchase all the extras that may be suggested with you when you are approved for a high-interest loan for having bad credit. For example, you don't have to get insurance through their provider; you can get your own. Click to read more information about auto financing.