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Bad Credit Car Loans

If you need a car and your credit is bad, you can still finance your purchase with a bad credit car loan.

These days it's almost impossible not to see an ad on TV for an automotive dealer that offers 'financing regardless of credit'. These commercials are referring to a bad credit car loan.

Although advertised heavily by car dealers, you do not have to get a bad credit car loan from a car dealer in order to purchase a car.

-- Credit Tip by FindLocalBanks.com
Federal law requires that all creditors must state the cost of their credit in terms of an Annual Percentage Rate (APR). This rate takes into account how the loan is repaid on a yearly basis, and allows you to accurately compare the cost of credit among lenders. For example: You borrow $1000 for one year and pay a finance charge of $100. If you can keep the entire $1000 for the whole year and then repay $1100 at yearís end, you are paying an APR of 10 percent. But if you repay the $1000 and finance charge (a total of $1100) in twelve equal monthly installments, you donít really get to use $1000 for the whole year. In fact, you get to use less and less of that $1000 each month. In this case, the $100 finance charge amounts to an APR of 18 percent.

Since the automobile is the collateral for the bad credit car loan, many institutions are willing to offer them as financing solutions for their clients.

The interest rate you would be charged on a bad credit car loan will depend on the status of your credit as well as the competitiveness of the financial institution. If your credit is extremely poor, you could expect to pay an interest rate in the low-to-mid teens.

-- Credit Tip by FindLocalBanks.com
The finance charge is the total dollar amount you pay to use credit. It includes interest costs and other costs, such as service charges and some credit-related insurance premiums. For example: Suppose you borrow $1000 for one year, and the interest is $100. If there is a service charge of $10, the finance charge will be $110.

The interest rate you would be charged on a bad credit car loan will also depend on the age of the car to be financed as well as the length of the loan term. The interest rate will be higher on older cars and for loans with longer terms.

If you get a bad credit car loan and are trying to keep your monthly payments as low as possible, you may want to consider extending the term of the loan (i.e. from 36 to 48 months). When getting a bad credit car loan, it is advised not to seek out an extremely long loan term (i.e. 72 months). By getting a bad credit car loan for extended periods of time, you run the risk of getting 'upside-down' on the car loan -- meaning you owe more than the car is worth. This means that if you wanted to sell the car several years from now, you would end up having to pay money just to get rid of it. If you are considering extending the term on your bad credit car loan past 60 months, you should instead consider finding a cheaper car to purchase.

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