Do you know the difference between “good” credit and “bad” credit? Many people understand that it has to do with their overall credit score, and some even understand that they actually might have three different credit scores depending upon the agency making the report. Additionally, there are many other people who have discovered that bad credit also comes from a history of late or overdue payments, defaults on loans, and even bankruptcy. This is the reason that many consumers need a bad credit car loan when they are trying to buy a new vehicle.
Someone with good credit is going to have no indication of tardiness with their bills, and no signs of any inability to repay a loan. The credit report of someone with a “bad” history, however, is going to make the lender worry if they will get all of the money back without having to pursue some sort of action against the borrower. This is the reason that a bad credit car loan might come with a higher rate of interest and a strict or shorter repayment period.
For example, if most lenders are issuing loans for new cars at four to five percent, the bad credit car loan might be offered at seven to ten percent interest instead. This is not to punish someone financially for having a bit of a shaky history, but is because the lender is trying to ensure that they get as much of their loan back as possible within the first years of the term.
Additionally, many people who are seeking a bad credit car loan will have to understand that many lenders will ask for a down payment against the loan too. This doesn’t mean that they will automatically have to come up with twenty percent of the purchase price, but it could mean that obtaining a loan is dependent upon some sort of cash up front.
The only way to discover the best options for a loan is usually to speak with a few potential lenders, but this too comes with some hazards. For example, if you submit applications for a handful of different auto loans this might actually drive your credit score down even lower. This means that you might want to really spend some time scrutinizing all lenders offering a bad credit car loan to see if they give any sort of relevant information without first submitting an actual application.