Bad Credit Used Car Loan
In the recent years, more and more bad credit used loan possibilities have emerged that bombard debtors as well as other bad credit lenders with the concept that they can purchase a second hand car or truck, regardless of their credit rating. Most of these ads are not lying, but you need to be very attentive when applying for a used car loan if you have a bad credit rating.
In most of these situations, a person that has a bad credit and wants to qualify for a used car loan must pay a larger down payment as well as a higher interest rate in order to obtain the loan. This of course is not 100% applicable as there are many financial institutions that give loans but will not offer them to people that have bad credits. Depending on how bad is the credit of a borrower, a down payment for a loan can range from a minimum of 20% to a 50% maximum. Also, depending on the credit as well as the legal limits of the state in which the borrower lives, the interest rate can be as low as 5% but it can get to 26%.
There are some loans called title loans that offer a short-term loan at a 12% level per month and if the borrower cannot pay off the used car loan, an additional loan at 12% must be taken. This type of loan is illegal in most states, but even in those in which you can do such a thing, it would be a very bad decision for obvious reasons. In most of the cases people that have a bad credit and are seeking a loan (regardless of type), they pay a 7-18% interest rate.
Another issue to take into consideration when applying for a used car loan with a bed credit is the amortization issue – the necessary time needed in order to pay the loan in full, if all the regular payments are made on time. For a borrower with a bad credit, his choices range only from 2 to 4 years in comparison to a person that has a good credit who can extend his loan for 5 to 7 years.
The most common abuse in a bad credit used car loan appears when a dealer artificially inflates the price of the second hand automobile or he raises the interest rates charged for the financing. A popular tactic of a dealer that specializes in giving loans for people with bad credit is they take a car that is worth $3,000 and inflate the price by doubling it, taking $1,500 down and finance the balance at 24-26%. What this means is that the borrower is obligated to respect a contract that consists of a very high interest rate and accept the fact that the price of the car and the under lying debt has no realistic relationship to the actual value of the automobile. In most cases, the borrower will default on their loan which means that they will ruin their credit again. If he does accept the loan and pay all his monthly rates according to what he signed, he will most likely pay for the car about 2-3 times in comparison to what he would have paid if he had chosen a more legitimate dealer.
There are many cases in which the borrower has better chances of saving money if he applies for a loan through a dealer. The reason for this is because a regular company that is dealing in the finance operation will make the largest part of its profit from financing the borrower, in comparison to a dealer that also is interested in making money from selling the car.
With the continuous development of the mass marketing possibilities of television and the expansion of the Internet, two new types of marketing have appeared for people that have a bad credit and want to get a loan for a used automobile. On the Internet, the most popular type is the dealer network system. A customer has the possibility to click on a website that advertizes the fact that a borrower can get a car, regardless of his bad credit situation. Such websites will ask the potential borrower to offer certain information. Once the person gives the necessary info, the website will send it to a dealer that is capable of dealing with borrowers that have a bad credit. The efficiency of these systems usually depends on how the dealer is capable resolving these loan applications. There is a possibility that a same referral network can have good and bad dealers.
The system offers a major advantage for the borrower as he does not have to pay any fees. However, the person must have confidence in giving his information to such websites. The efficiency of these systems varies almost entirely on the geographic coverage as some of them may have 10 dealers while other even 1000.
For taking out a bad credit used car loan, there are many application services on the Internet that consist of automatic multiple submission financial info to institutions that can offer the loan. For these automated submissions, the person that wants to borrow money must fill out an in depth financial form and afterwards, the network’s coordinator will send this form to the lending institutions that may or may not approve that loan. If all things go smoothly as planned, the borrower will be contacted by 3-4 lenders who will compete with one another to offer the lender the best offer possible.
Although there are many possibilities at the moment, a person with a bad credit and without the possibility to put a down payment will have slim chances of being eligible for a loan, but this does not mean that he should give up as there are many financial institutions that are waiting for borrowers that have a bad credit to request a loan for purchasing a used car or a truck.
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