AutoLoans City

A good credit auto loan works just the same as if you were to go to your local bank, but people with not so great credit would have to supply a larger down payment and probably have a higher interest rate. Take heed though, because most lenders will not take the chance on people with bad credit. The down payments and interest rates can vary depending on how bad your credit really is.

For example, the down payment could be anywhere from 20% to 50% down and the interest rate can be as high as 26% depending on which state you live in. There are a few cases where people already own vehicles and will use them as collateral for some short-term loans. These types of loans can have an interest rate of 144% per year.

Title loans offer short-term loans, but beware because the interest rate can be 12% per month, so if you do not pay it off within the month you will have to acquire a second 12% loan until it is paid off. Having to take out a second loan is illegal in most states and does not make your financial situation any better.

Most of the time, lenders just make the applicant with bad credit pay the higher interest rate, which can range from 7% to 18%. The amount of time needed to pay off your loan in full, also called amortization, can range from two to four years. If you had good credit that range would be extended to 5 to 7 years.

Rebuilding Bad Credit

Compared to people with excellent credit, the amortization schedules and higher interest rates will make it appear that you have a much higher monthly payment. If you make all your payment on time, this loan will only aide in your rebuilding of your credit. Automobile dealerships often broadcast that they are willing to work with those with bad credit, but they themselves, work specifically with those lenders that have the particular programs designed for bad credit. Internally dealerships will work out the details with the bank, meaning that the loan can remain unpaid until so many payments have been made. This insures that the bank will get paid for the loan, and the dealership stays on good ground.

Be Careful And Shop Around

There are some lenders out there that bend the rules of a bad credit loan. There have been some that inflate the price of the vehicle or even the interest rate to make a good deal. What they do is take a car that is normally sold for $3,000, inflate the price to $6,000, have the down payment be $1,500 and the interest rate as high as 26%, and then they advertise that they specialize in bad credit programs.

The problem is that the person with the bad credit now gets a vehicle that is no where near the value of the car, but are indebted to paying the rates because of their financial situation. Because of the high rates, most people will default on this type of loan, which just makes their credit worse. If the borrower had gone to a legitimate dealer, they would avoid paying double or even triple the value of their vehicle.

The point to be made is to be aware of what could happen when dealerships advertise such a program. Knowledge is a very useful tool. By knowing what programs are out there, and the value of the specific car can help you make better decisions that affect your financial situation.

The majority of people who decide to buy a car will finance that purchase through an auto loan. After you select the car that’s best for you, decided on options and colors and negotiated the price it will be time to finance your purchase. A little forethought and planning will make this transaction much easier.

Long-term and short-term auto loans each have advantages and drawbacks. Lenders will usually restrict long-term loans to new cars. These loans typically have lower monthly payments, as they’re spread over a period of three, four or five years however, you’ll pay more interest charges on these longer loans. A car purchased for fifteen thousand dollars and financed with a four year loan will ultimately cost you about $18,000!

The longer the term of your loan, the high the interest rate. You must also take into consideration the devaluation of the car over the life of the loan. If the car is damaged or destroyed before the loan is paid off it can be worth less than the value of the loan.

Short-term loans are extended for used cars and last from two to three years. They usually have lower interest rates than long-term loans, so you’re actually saving money by taking out a short-term loan. Your monthly payments will be higher than with a long-term loan but the interest savings are substantial and you’ll pay less overall.

Another type of loan is a lease. You may choose to lease a car for many reasons but people usually lease in order to have a new car every few years and avoid the devaluation that comes with owning a car. Lease payments are often lower than the loan payments on a car you purchase but there are costs to leasing you will want to be aware of.

If you decide to lease a car you will need a down payment, just as when you buy one. The leasing industry calls this a “capitalized cost reduction”, as it reduces the amount of the lease. A security deposit will also be required, also referred to as a “reconditioning reserve”. Your deposit is returned to you at the end of the lease arrangement unless your violate the terms or damage the vehicle. You must also pay the first monthly payment of the lease before you take possession of the car.

Closed-end leasing is an agreement that allows you to simply turn over the car to the leasing company as the end of the agreement and walk away with no other commitments. Unless you’ve damaged the car, violated the lease agreement or have caused unusual or excessive wear and tear to it, the end of the lease is the end of your commitment.

Open-end leasing, on the other hand, doesn’t afford the same protection as closed-end leasing. At the end of your lease agreement, the leasing company (or “lessor”) calculates the car’s fair market value and residual value. You will have to make up the difference in the form of an extra payment and it could be quite costly.

One big disadvantage of leasing a car is the mileage limitations, imposed to control the devaluation of the vehicle. If your business or personal needs require you to do quite a bit of travel, leasing may not be your best option.

Lessors are required by the Consumer Leasing Act to explain all charges and terms of the lease to you. Be very sure you understand the terms and conditions if you decide to lease a car.

Whether you decide to buy or lease a car, read every document carefully before signing.