November 13, 2013If your credit has been hurt by issues with job loss, mortgage payments, or the economic conditions of the past several years, there’s far more hope than in the past to get into a new car—or at the very least, a late-model used one.
There’s actually never been a better time. The market for so-called subprime lending for auto loans is strong. And even if your credit is very bad—we’re even talking below 500—you might be able to be approved for a new car.
Why is it so easy to get a car loan as opposed to open up a new mortgage, or even take out a new credit card? Lenders tend to view car loans as lower-risk—even to those with bad credit—because a car is an asset that can be repossessed by the bank or lender in a relatively straightforward way if you fail to make the payments. Secondly, auto-loan credit rates tend to be less restricted, and a lot higher for those with bad credit.
And that, really, leads to the down side of going for it and getting a new vehicle, and the long loan (up to 72- or 84-month) that comes with it. You’re probably going to have an interest rate of more than ten percent, which means that just for the privilege, by the end of the loan you could end up paying triple or quadruple the interest—and thousands of dollars more—than someone with very good credit.
How do you go about getting these loans? The same advice that applies to people with good credit applies here to you. Go to your bank or credit union first and check their rates and how much credit they’ll extend on an auto loan. Then shop at the dealership, and carefully weigh their terms after you have a specific car or model in mind.
Remember, don’t start out by shopping for a vehicle by monthly payments. It’s a mistake for any new-car buyer, but it’s an especially costly pitfall for bad-credit shoppers. Use the advice your bank or lender gave you on how far upward you can comfortably stretch your loan and payments, and shop for a car based on that loan amount.
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