Consumer Car Buying Advice Blog

Consumers who find themselves with a FICO score below 640 can make the most of a bad credit car loan by simply planning ahead.

We know what you’re going through

At Auto Credit Express, we’ve been helping bad credit car buyers, for nearly twenty years, reestablish their car credit by financing a new or recent pre-owned vehicle with a bad credit car loan. During that time, we’ve tried to educate consumers on high to take advantage of the process – since these very same people begin with a distinct disadvantage due to the high interest rates charged by these loans.

Beginning the process

If you’re like many car shoppers who haven’t taken the time to order a copy of their credit report from each of the three major bureaus (Equifax, Experian and TransUnion), you may find that the buying experience can be embarrassing as you visit your local dealers and try, over and over again, to get a reasonable interest rate on a car loan – or even qualify for one at all.

Many of these local dealers want nothing to do with bad credit buyers. Others, with nothing more than part-time subprime departments, want to charge eighteen to twenty-five percent interest on the loan for bad credit car loan borrowers and then offer financing for half the time period of what a good credit borrower might qualify for. Not only is the interest rate higher and the time to pay it off lower, the down payment is higher and, in many cases, the dealer will add fees for unnecessary items such as window etching, credit life insurance, and rust protection. And while a no down payment bad credit car loan may seem like the answer, just the opposite is true.

A typical bad credit auto loan scenario

The average new car has a price range of anywhere from $15,000 to $30,000. The only way most consumers are able to make a purchase that large is through financing. Most people can afford a monthly payment in the $300-$400 range.

Here is a typical example of no down payment car loans for bad credit using a credit score (FICO score) in the mid-to-upper 500 range and a new car with a selling price of $18,000.

As far as the actual cost of the loan, the typical period for bad credit car loans is 2-7 years. Using 5 years as our example, we’ll next look at the interest rate.

Interest rates range from a minimum of 6% (requiring a FICO score of 720) or so all the way up to a rate ceiling of nearly 30% for most states. A median rate would put us at 18%. Since this is an example of no down payment car loans for bad credit, the entire amount will be financed.

With a 5 year amortization on the loan, the monthly payment comes to $457.49 for 60 months with the total amount paid coming to $27,449.40 and total interest paid of nearly $9450.

If this had been a normal car loan with an interest rate of 7% and no down payment, the monthly payment would’ve been $356.74, the total amount paid would’ve been $21,404 and the interest paid would’ve been $3404.

Turn disadvantages into advantages

So if you have bad credit and you don’t qualify for the best loan rates, how do you cut down on the amount of interest you pay while keeping the payment affordable? The answer is the opposite of a no down payment car loans for bad credit loan.

Here are the steps that can be taken to reduce your loan costs:

•    Know your FICO score and credit history by requesting a free credit report from each of the three bureaus at least 12 months before you plan on applying for a bad credit car loan (sites such as freecreditreports360.com will, for a nominal fee, furnish all three reports with te accompanying FICO scores) . Even if you can’t clean up your entire credit history, paying your bills on time, reducing your revolving (credit card) debt and correcting any mistakes can help raise your score. If, after all this, you still only qualify for a bad credit car loan, the interest rate will be lower and you’ll be able to raise your credit score more quickly by starting with better credit.

•    During this time, put aside money each month for a down payment on your new car.

•    When the time comes, pick a more affordable car and finance it for a shorter loan period. You may be able to lower your monthly payment and you will definitely be paying less in interest expenses.

Here is the new scenario:

With your better credit score, you qualify for a loan with an interest rate of “only” 15%. The rate is still high, but it’s 3 points better than the previous loan scenario.

This time, you choose a new car with a selling price of $16,090. With the money you’ve saved, you’re able to make a down payment of $2,500. Financing the car for 48 months, the month payment is $378 – a savings of nearly $80 per month over the previous loan.

Not only that, but your total loan payments come to $18,155 and you’ve paid only $4,565 in interest - nearly $5,000 less.

The finishing touch

The only thing left to do is find a dealer that will work with you to get this done. At Auto Credit Express, we are in the business of helping our customers raise their credit scores and reestablish their car credit by financing a car with a bad credit car loan.

Our nationwide network of affiliated dealers specializes in bad credit car loans – eliminating the need to spend hours trying to find one. Our web site, www.autocreditexpress.com, has calculators and a resource page to educate you about the buying process. When you’re ready, our secure auto loan application can be filled out in the comfort and security of your home.

Tags: auto loan, bad credit, bad credit auto loan, bad credit car loan, car loan, credit, credit report, credit score, equifax, experian, fico, Fico Score, free credit report, no down payment, subprime, transunion

This entry was posted and is filed under Auto Loans. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.