Car loan interest rates and bad credit facts

Most of the time, car loan interest rates and bad credit facts are not so compatible with each other. Creditors with FICA score below 500 are usually having hard times looking for loans that they could use to finance their vehicle purchase. In most cases, they usually obtain loans with higher interests and end up paying more than what their vehicle costs. Besides these, there are other important facts in financing that you need to understand. It is therefore important to know these facts before jumping into car financing especially when you own a bad credit score. Some of these facts are the following:

Higher financing rate

Car financing for bad credit score holders usually work the same way as obtaining bank loan. The creditor agrees to pay a certain amount of monthly payment within a specified time. However, bad credit holders pay larger down payments and interest rates. The total payback amount can be larger than the actual cost of the car. In case these creditors decide to sell their vehicle in the future, there is the probability of getting less profit for the car sale.

Higher down payment

Bad credit score holders are usually required to pay higher amount for down payments. Compared to good credit score holders that usually pay 10% to 20% down payment, bad credit score holders might be required to pay up to 50% of the car’s value as down payment. For example the car has a value of $10,000 a good credit holder might be required to pay a $2,000 while a bad credit holder might be required to come up with a down payment of up to $5,000.

Know your credit history

Knowing your credit history can help you determine what to expect from lenders. In case you are dealing with direct lenders, you can negotiate with them and make arrangements as to how your loan rates could be made more manageable.

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