Getting a car with bad credit is often considered to be one of the biggest mistakes a person can make. It’s a major loan which can mean thousands of dollars’ worth of payments, and with the wrong car loan, the already expensive decision to get a car can be made into an even bigger expense. Here’s why…
Higher Interest Rates Means Higher Monthly Payments
What many people don’t realize about car loans is that it all boils down to one thing: credit. While just about anyone can get approved for a car loan, the fact is that not everyone can afford to pay it. Car loans are very unique in how massive a range their interest ranges are, and interest rates can be as high as 25%. That means that a car can be twice as expensive as the lot price if you have bad credit if you have a four year loan.
Interest rates drop dramatically pretty quickly with car loans, so the difference that 20 or 30 points can make is staggering in terms of the overall interest that you pay. Of course, paying higher amounts of interest will also mean that you will pay more every month. By just getting good credit, you’re looking at a lower payment.
Bad Credit Car Loans Are Also Predatory
We hate to say it, but not all dealerships offering bad credit auto financing act in the customer’s best interest. It’s not that unusual to hear about bad credit car loans that have interest rates that are sky high, nor is it that unusual for people to hear about additional fees that are slapped ontop of the actual loans by unsavory dealerships.
To make matters worse, many “buy here, pay here” dealerships work with bad credit auto loans because they are actually hoping that people will default on their loans. This scam, which is sadly legal, starts when the person with bad credit ends up being a couple of days late with the payment. Some dealerships will actually repossess the car almost immediately after the car’s payments become late, then will resell the car so that they can maximize their profits.
It’s Not Too Hard To Improve Credit
The biggest reason that you should avoid bad credit car loans is because you can avoid a lot of major pitfalls that come with bad credit auto loans. It doesn’t take too long to do it, either. As long as you work at it a little bit, a good auto loans isn’t too out of reach.