How consumers can reduce the interest charges on a bad credit car loan

Doing it right

There are hundreds of web sites on the internet vying for your attention if you are credit-challenged and you're hoping to finance your next car with a bad credit car loan. The best of these sites, such as, can help you raise your credit scores and reestablish your car credit by filling out an online bad credit car loan application and financing a vehicle with a second chance car loan, which is usually done through that site's affiliate car dealers.

Just as importantly, these web sites try to provide their applicants with the information they need in order to make educated decisions about the kind of loan they should choose (such as a tote the note loan versus a bad credit car loan). The reasoning behind this is simple: a bad decision at this time could result in a loan these people can't afford which could turn into in a repossession that could lower their credit scores even further.

Here are some facts: a bad credit car loan means you'll pay a higher rate of interest than you would on a regular car loan. This high interest rate means more money out of your pocket just to finance your car. But there are strategies that you can use to reduce the amount of money you pay in interest charges. Here is one of them.

Shorten the loan term

Although it may sound simplistic, one of the surest ways to reduce interest charges is to shorten the loan term. While a shorter term will increase the amount of your monthly payment, it will also lower the amount of interest that you pay on the loan. For example, if you finance a car with a selling price of $15,000 plus tax (7%), a down payment of $2,000, and with fees of $120 (non taxable), the total amount of the loan comes to $14,170 (you can duplicate this process by going to our auto loan calculator).

If you finance this amount for 60 months, your payment will be about $337 per month. The amount of interest that you would normally expect pay over the life of this loan will be $6034.

If you were to reduce the loan period to 48 months, the monthly payment would increase to $394 (about $2 a day), but the amount of interest you'll pay over the life of the loan would drop to $4742 – a decrease of almost $1300 ($27 per month, on average) when compared to the five year loan (you can also verify this with our car loan calculators).

The dreaded negative equity

In addition to reducing interest expenses, there is another big benefit to shortening the loan term. It's common knowledge that a car loses its value as soon as you drive it off the lot. In fact, if you owe more on your car that it appraises for when you need to trade it in, you have what is known as “negative equity”. This means the book or auction value of the car is less than what you owe on the finance contract.

The solution to this problem is simple: by shortening the loan term and paying more every month, you will substantially reduce the amount of negative equity, especially during the early portion of the loan. This means that, with a shorter loan term, when you are ready to trade in you car in a year or two for a different vehicle and at a lower interest rate, you will either have less negative equity or, possibly, even real equity in your trade-in.

In other words, by financing for a shorter period of time, you have turned a negative situation (no equity or negative equity in your car) into a positive situation (no negative equity and possibly trade equity in your car).

As we see it

If you need to get a car with a bad credit car loan, you have to look at the process as a stepping stone to better credit. Finance the car for the shortest loan period that you can afford, make your payments on time and use this as a step in reestablishing your credit.

Auto Credit Express has helped thousands of people with bad, blemished, bruised, and tarnished credit buy cars and reestablish their auto credit at the same time. Our nationwide network of affiliate dealers specializes in bad credit car loans. So if you are serious about getting your credit back on track, you can begin the process right now by filling out our secure online bad credit car loan application.

For more information, feel free to visit to see what we can do for you.