Sometimes life’s expenses loom up all at once and sometimes we simply develop bad spending habits. But neither of these scenarios eliminate our need for a car. The good news is that even if you have bad credit, you can still get an auto loan.
Anatomy of a Bad Credit Car Loan
Many lenders offer auto loans to borrowers with bad credit. In some ways the loans are quite similar to any other auto loan. Here are a few similarities:
- The structure of the loans will be the same. You will supply a down payment, make monthly payments with interest, and will have a set loan length (also known as amortization).
- You can buy almost any type of vehicle (SUV, Sedan, Motorcycle, etc.).
There are also a few differences:
- You may need a co-signer. A co-signer is a family member or close friend who would be considered a desirable borrower (e.g., has good credit, decent income, etc.) and who will sign your loan statement with you. If you miss payments, you will both be held responsible.
- Your interest rate will probably be higher because you are considered a higher risk borrower.
- You may have to forego the traditional 13-15% allotment of your monthly net earnings. While this figure works well for people with little to no debt, you will have to reconsider if you have a great deal of debt.
Car Loans Improve Your Credit
If you can handle the added monthly bill, it may be a good idea to get a car loan while you have bad credit. If you can pay your monthly payments in full and on time, your credit score will improve. Just make sure that you get a loan from an agency that reports to the credit bureau, otherwise your improved financial habits will go unnoticed.
* Auto Loan Center is not an auto loan lender or broker, but provides information about auto loan products and lenders. Not all products and services are available in all states.