An auto loan for people with bad credit is not as difficult to get as you might think. Wprking in your favor if you have bad credit, is that an auto loan for people with bad credit is still a secured loan. The lender keeps the title to your car until loan is paid in full. If you fail to pay your loan according to the terms of the loan, the lender can repossess your automobile and sell it to pay off your note.
This does not mean necessarily that it’s easy to get an auto loan for people with bad credit. Many lenders will want to see a stable employment history, and will want to make sure that your existing debts are covered by your monthly salary. Some lenders may want a minimum of three months employment with your current employer. And lenders will determine what percentage of your salary is spent now on monthly debt – your debt should be no more than 30% of your monthly income, but each lender will have their own guidelines. Although a lender is secured when they give you an auto loan for people with bad credit, the last thing the core lender wants to do is repossess your car.
If you have a stable employment history, and you currently can pay your debt with your income, then even if you have bad credit you can probably still qualify for an auto loan for people with bad credit. It’s possible to qualify for this type of loan even if you have bankruptcy, foreclosure, or other events in your past that have damaged your credit.
If you are trying to reestablish good credit, an auto loan for people with bad credit may be a good way to go. If you need a new vehicle, perhaps to take a job or to replace an existing vehicle, it’s worth it to try to use the auto loan as a way to establish good payment history. If you are in financial trouble, however, buying a new car simply to try to establish good credit is not a good idea. Try to keep your monthly debt payments to a minimum while you rebuild credit, and assess the auto loan in light of your complete financial picture. A better way to go might be a secured or unsecured credit card, in a small amounts such as $300 or $500, which will give you an opportunity to establish three to six months of good payment history. After that time you can qualify for better terms on an auto loan or other credit
However, if you do need a new car, and your credit history is poor, don’t despair. There are quite a few lenders to recognize that there is a market for auto loans for people with bad credit. You may have to pay higher interest on your loan, as well as an application fee. Some lenders may charge you additional fees, so be sure to ask before accepting a loan.
In addition, bad credit customers are often required to pay a prepayment penalty. A prepayment penalty is a charge that you are assessed if you pay off your auto loan before the end of the term. Lenders who write auto loans for people with bad credit are seeking a certain return on their investment; if you pay your loan early, they feel they have not received the profit they expected for their high risk loan. As a result some lenders charge the prepayment penalty to regain some of that expected profit. it’s highly recommended to avoid such a penalty, and if you shop around, you may be able to find a lender who will not charge a prepayment penalty.
Obtaining an auto loan for people with bad credit is not impossible, and it may be a good idea if you really need a new car. This auto loan can be another good credit item on your credit report as you rebuild your credit score.
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