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Car Loans For People With Bad Credit

Sometimes bad credit happens to good people. You may have come up with an unexpected job loss, poor financial advice, medical bills, or merely the inexperience of youth (we've all been there). That doesn't mean you're an unacceptable risk, and it doesn't mean you can't buy a car. It doesn't automatically mean you can't get a car loan. You can, and with terms that won't break your monthly budget.

Let's avoid the sugarcoating and be real. A low credit score changes the way a bank sees you, potentially making securing a traditional auto loan impossible. Remember that "bad" is a matter of opinion and is not always reflective of your character or work ethic.

Below are a list of auto loan providers and some strategies that will get you behind the wheel of that much-needed car.

Know the score
Whatever you do, don't take someone else's word that your credit is bad.

Get your free Annual Credit Report from the three major agencies, Equifax, TransUnion, and Experian. It's a quick and easy process with just a few personal questions to verify your identity. Remember to save and print your reports before you leave the site.

Don't be disheartened
Your reports may come back with a disappointing score, and it may take you several minutes to get back into your seat. If that's the case, don't lose hope. Car loans involve less financing than larger purchases such as a home, and repayment occurs over a much shorter timeframe. A car is also a lot easier to repossess than a home. All of that makes car loans easier to get than home loans. The same score that would have you facing a subprime mortgage could land you with a prime auto loan.

The effects of bad credit
Typically, a poor score means larger monthly payment on any car loan, as lenders tend to charge higher interest rates, offsetting their higher perceived risk. This is not to say that you can't get a loan at an affordable rate.

Know your needs
Brace yourself for the cold-water dip if you've determined that you have a bad score. You're going to pay a higher APR. That's just a fact, so be smart. Don't buy a vehicle that's more than you honestly need. That's right, the two-seater exotic import with as much luggage space as a box of Tic-tac's, more horsepower than the last ten years of the Kentucky Derby combined, and a commute to work that rivals the speed of sound is not a good choice.

On the other hand, if your job requires transportation or deliveries of goods, or if you have a big family, be sure not to purchase a vehicle that's less than you need.

Budget
Figure out the amount you can realistically spend on monthly payments. If you've spotted a car you like, check the vehicle on the Kelley Blue Book to get a good estimate of its market value. Don't overpay or fall for "the deal of the century" being offered by some shark patrolling the used-car lot.

Think about the monthly costs of different terms. The longer your contract is, the smaller the monthly payments will be. Your options may be limited, though, as car loans are typically 2 to 3-years terms if you've got bad credit, rather than the standard 4 to 5 years.

Remember, auto insurance is mandatory in most states, and it's a significant cost. Get insurance quotes as part of your budget planning process.

Shop around
There are plenty of fish in the sea. Some lenders will see a bad credit history in a more positive light than others, so don't be pressured into a bad financial decision. Remember to check out your bank or local credit union, too. It's a good idea to get informed on all potential options before signing on the dotted line.

Here are a few other good places to start:

Auto Credit Express won't automatically deny a loan for an older, high-mileage vehicle. If you have bad credit, Auto Credit Express offers a range of options that may ultimately result in getting a lower APR. Even if you've dealt with bankruptcy, Credit Express works with special finance dealers who specifically assist buyers with low scores.

Capital One. With more than 12,000 dealers accepting its financing, Capital One is a great big bank lender if you've got bad credit. They offer competitive interest rates, comprehensive buyer-education resources, and an Auto Navigator tool that allows you to get pre-approved and compare car payments on specific vehicles.

MyAutoLoan can get you in touch with lenders in minutes, even if your rating is well short of perfect. The site has some impressive tools, including an interest-rate estimator, designed to give you an idea of what interest rates you might expect.

Negotiate
If the auto you need is more than you can afford, you can negotiate to get the price down. Even if the vehicle is already within your budget, there's no harm in trying to knock a few dollars off the price. Since a bad credit score might prevent you from negotiating the terms of your auto loan, it's a good idea to reduce the purchase price of the vehicle before loan negotiation begins.

Ask a friend or relative to go with you! Moral support will help, and it's great to have another set of eyes and ears present.

Beware of the add-ons
Cue the Jaws theme. More often than not, you'll have already agreed on a price and the terms when the dealer suddenly begins offering additional products or services, right before you put pen to paper and sign that contract. These after-market warranties and other such non-essentials probably weren't included in the agreed price. Know what they are, what they offer, and whether or not they fit your budget before agreeing to anything that will push the price up.

Beware of the 'yo-yo' scam
Imagine being told weeks after you've signed a contract and made your purchase that your monthly payments have been increased, or being bombarded with claims of your financing being incomplete, forcing you into paying higher interest rates.

It happens. Often.

If you finance through a dealer, make sure the terms are final, not contingent or conditional.

Final Thoughts
Take your time and read all pages of the contract. Feel free to ask questions. Don't sign until you're confident that you have the right deal. If you're not sure about anything, ask for clarification.

At the end of the process, you drive away in a car you trust, bought at a price you can afford, no matter how low your credit rating might be. It takes some effort, but it's worth it!