Bad Credit Auto Loans: A Little Introduction

Shopping for a new or used car can often be a daunting task. And trying to get a car loan with bad credit can be even more frustrating, and often times even an embarrassing experience. Bad credit auto loans are for people that cannot get pre-approved for a car loan through traditional lending sources such as local banks, credit unions, or the lending arms of car manufacturers like Ford Credit and GMAC.

Unfortunately, these lending sources typically do not lend to people with low credit scores, a recent bankruptcy, no down payment, low income, or a history of vehicle repossession. Bad credit car loans are often initially funded by the automobile dealer and later assigned or sold to a financing company. In the case of “buy here pay here” car lots, a third party payment processor may service the car loan for the dealer, or the dealer may carry the loan entirely on their own.

For most credit-challenged consumers, the inability to locate a dealer that offers car loans for people with bad credit takes them down the unfortunate path of local “buy here pay here” car dealers. Working with “buy here pay here” car dealerships can be a problem because, in most cases, they do not report loans or car payments to the credit bureaus. This means your credit will not benefit from the responsibility you’ve displayed by making payments on time. In addition, these types of dealers do not always have the best reputation and may charge very high interest rates and finance charges. This is not to say that all of these types of dealers are bad but you need to be careful. Taking on a bad credit auto loan, in a responsible fashion, leaves an opportunity for bad credit consumers to improve their credit score.

Unfortunately, the results of most car loans for bad credit end in the credit scores and history of poor credit consumers either degrading further or remaining unchanged. This situation handcuffs many people into a destructive financial cycle of high down payments and loan defaults. Further, these people are left constantly wondering when and if their car will be repossessed and what they will do if their vehicle is repossessed. That’s a cloud no one wants hanging over their head. So the question is… what do you do if you really want to start rebuilding your credit? How do you go about finding a lender or lender-dealer that offers auto loans for bad credit?

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