What is a Bad Credit Auto Loan?

Today even those with a bad credit history can be able to enjoy the comfort that comes with owning a car. This is made possible through the bad credit auto loans. A bad credit auto loan is meant for people who have a poor credit and have been turned down from the conventional loans. These loans can be unsecured and short term. It is important to know that the terms set for the bad credit loan do not work in favor of the borrower. Despite there being no credit check required before one can get the loan, the increased risk that a lender is placed means that a borrower has to deal with high interest rates. Ideally the lender will be putting up money to something that may end up being a bad loan and as such they demand a significant return upon an investment.

The bad credit auto loan shares some similarity with the unsecured loans .The only difference lies in the fact that in the bad credit auto loans the vehicle acts as collateral. As a result of this there are very strict terms placed. A late payment will mean an automatic repossession of the vehicle. As a matter of fact this is how a number of unscrupulous dealers who deal with used cars sell the same the same car over and over again. As a buyer one should therefore ensure that no late payments are made.

A short term loan is another type of the bad credit loan which receives so much attention. Many times they are also known as the payday loans because of the time when they are due. Even though there are those who call them cash advances they have very stiff terms. There are a number of alternatives which a person who wants a bad credit auto loan can take into consideration. For example, a credit card which has been secured. This card requires one to place in a deposit for the credit line to be extended. This is normally about one hundred and fifty percent of the amount deposited.

One advantage is that these credit cards that have been secured are usually reported to the credit bureaus and this in turn helps in building credit. It is important to note that not many places which offer the bad credit loans report to the credit bureaus.

If one desires to go for a bad credit auto loan, it is important for the person to understand all the details pertaining to the loan before an agreement is signed. This is because many people find themselves in a bad situation after a deal has been signed. The best way for a car shopper to get the most favorable terms is by shopping around. Even the most reputable car dealers are known to have provision for those that have a bad credit.

Tags: ,

Leave a Reply

You must be logged in to post a comment.