Auto Loans Are Still Available to Those With Bad Credit

When one has bad credit, it can seem as if purchasing anything with loan funds is out of the question. Many are denied credit cards, auto loans, and even home loans. Quite simply, it can be incredibly difficult to make a lot of the major purchases that are a part of life. Fortunately, there are some select lenders out there who specialize in funding bad credit borrowers.

If one with bad credit is searching for an auto loan, it's important to understand that finding the right lender can be a challenge. In most scenarios, these types of loans are not referred to as auto loans. Rather, they're called car title loans. By understanding what these loans are referred to and the risks involved with using them, one can make a better informed financial decision regarding their next auto loan.

How Does a Loan Work With Bad Credit

Those who have a bad credit rating will shortly find out that finding an auto loan can be difficult. There are only a handful of lenders who are willing to take on the risk of loaning to people with less than perfect credit. This is because these lenders know that the risk of default is much higher with bad credit borrowers than those without good credit. As a borrower with bad credit, it's important to understand the lending process and risks associated with taking on a bad credit auto loan.

If one has bad credit, meaning a rating below 600, they're going to have trouble finding a regular lender. In most cases, these individuals will have to apply for a loan with a lender who specializes in giving out credit to borrowers with a bad credit score. These places can be difficult to find and require some extensive research. Most will market themselves as payday loan lenders or car title loan lenders. Their biggest marketing ploy is to state that they will not require any credit check.

It's important to realize that most lenders will initially run a credit check to determine the state of a borrower's credit. This will also reveal the person's debt-to-income ratio, which is another popular factor used to determine one's eligibility for an auto loan. Most bad credit lenders will require the borrower to make weekly or bi-weekly payments on the loan. They'll also require that they are given a set of keys and the lien on the vehicle so that they may reclaim it if the borrower doesn't pay.

Risks of Accepting Loans With Bad Credit

While one can be plagued by bad credit for a number of reasons, this shouldn't always stop them from purchasing a mode of transportation. As we've shown above, vehicle loans are available for those with less than perfect credit. However, one must be well aware of the risks associated with accepting these bad credit loans. These include:

• High Interest Rates - One key feature that follows all types of bad credit loans is a high interest rate. Most lenders will charge the maximum interest allowed in the state that the loan is being offered. While it may seem nice to finally get a lender to offer money, accepting their loan likely means signing on for astronomical interest rates. It's important to consider what the total interest cost will be on the loan to get an accurate representation of whether or not a bad credit loan is ideal for the borrower.
• A New Loan Doesn't Change Old Habits - If one has bad credit due to bad money management skills, a new auto loan isn't going to fix that problem. Just because there's a new name for the lender doesn't mean that this loan is going to be managed any better than past ones from the borrower. Only a real change in spending and money management tactics will ensure a successful loan payoff from the borrower.
• There's Usually Hidden Fees - It's important to think from the perspective of the auto loan lender. When extending credit to a person who has shown that they're not great at managing their credit, the lender is taking on a big risk. To help compensate for that larger risk, they tend to add on hidden fees. These include loan installation fees, high late payment fees, interest rate boosts upon missed payments, and more. One must know the hidden fees to ensure they are aware of what they're financially responsible for during the duration of the loan.