Bad Credit Car Loans

What is a bad credit car loan?

Let’s put your credit aside, a vehicle is a necessary form of transportation for many Canadians. A car loan payment can some times be confusing and hard understand adding the factor of interest rate and cost of borrowing even for people with good credit. Now for those with less-than-perfect credit history, the only option is a bad credit car loan. These loans are different from a traditional car loans in several areas. These loans are offered to buyers with stipulations attached. The following gives you a break down of bad credit loan terms and commonly asked questions:

Car Loan Interest Rate

1. Typical bad credit car loan will come with slightly higher interest rate. Depending on a buyer’s credit history, interest rates can vary from 9 to 21 percent annually. This interest rate will vary depend on buyer’s credit history, those with less risk involved will get a lower rate, versus higher risk individuals may receive a higher rate. Rates such as these can mean paying only pennies on the principal balance each month, and are connected directly with how much of a risk the lender deems the buyer to be.

Down Payment Or No Downpayment

2. Bad credit car loans typically come with down payment requirements as well but it is not always the case. While most car loans from the bank or the lender can be obtained without qualified buyers putting any money down, bad credit car loans often require down payments of $1,000.00 or more. The down payment is calculated based on a percentage of the price of the vehicle. Usually the higher the price of the car, the higher the down payment.

Loan Amount And Limits

3. Debt-to-income ratios or DTS ratio play a big part in any loan. If a consumer’s debt is low, and bills are paid on time, he/she can typically be approved for a car loan without any major issues. In a bad credit car loan scenario, however, the lender often sets a limit on the loan as well as some other stipulations about the vehicle to protect its interest in the collateral. The limit that the lender sets can also directly impact the percentage of the down payment needed to purchase the vehicle.

Stipulations

4. Because bad credit car loans come at a high risk of default, the lender will make certain stipulations in regards to the year, make and model of the car. The reasoning for this is because bad credit car loans come with a high risk of repossession, and the lender wants to secure an interest in the vehicle being resold for a profit. So that must be taken into consideration when applying for a bad credit car loan.

Considerations

5. Being in a situation where a bad credit car loan is a must can be a difficult one. It is wise to either have a high down payment or solicit a co-borrower who has good credit. This will help keep your monthly payments lower for the term of the loan. If this is not possible, however, try to refinance the vehicle after owning it and making timely payments for at least 12 to 24 months. This can reduce monthly payments and balance the equation of the loan in your favor.

Warning

6. Bad credit car loans are normally accompanied by fast-talking car salesmen. Don’t get roped into a deal on the first vehicle you find. Make sure you order a vehicle report on every used car to protect yourself against buying a "lemon." Also review the loan terms carefully from the finance department at the dealership, and make sure you are not on an accelerated payment or balloon payment car loan, where high payments are due at the end of the term.

Expert Insight

7. Before visiting a dealership for a purchase, obtain a car loan from an outside lender. This will allow for you to have your financing completed and provide you with more buying power. Having a check in hand when walking into a car dealership takes the mystery out of how much you can spend, monthly payments and high-pressure sales people. Bad credit car loans can be found online or at your local bank or credit union.