We take a look at adding a used car service contract to a car loan for buyers with questionable credit

What we know

When it comes to used car service contracts for consumers with bad credit, adding one to an auto loan really depends upon the buyer's personal situation.

At least that's our opinion here at Auto Credit Express where, for the past two decades, we've been helping car buyers with poor credit looking for online auto loans locate those dealers that can offer them their best opportunities for car credit approvals.

Financial situations

One of the things we try to stress is that consumers with poor credit should use common sense when signing up for a car loan. This means that, above all, they shouldn't try to stretch their budgets to fit the car. This is because the basic purpose of high-risk auto loans is to reestablish credit, not finance a dream car.

As part of the finance process, buyers are often given the choice of a number of dealer "add-ons". These extras can range from window etching and undercoating to paint protection and extended service contracts. And while many of these items are useless, it's often worth the time to take a closer look at a used car service contract – sometimes referred to as a used car warranty.

Used car warranties

It may seem obvious, but when consumers take out a subprime car loan, they end up paying more - sometimes a good deal more - in interest charges than they would be with a regular car loan. For that reason, the loan payment normally takes a higher percentage of the buyer's budget.

Sometimes this doesn't leave much wiggle room for unexpected expenses. The concept behind a used car service contract is basically the same as any insurance policy – to divide up the risk into affordable monthly payments instead of one large, catastrophic one. That's because it's always easier to budget for a small monthly amount than a single large unexpected one.

Service contracts and loan terms

When choosing a used car warranty, pick one that covers the entire loan term. Even though in the ideal situation buyers should try and refinance or trade in as soon as possible and try for a lower rate, under certain circumstances it might be necessary to carry the loan through until it is paid off. In this case if the service contract only partially covers the finance term, this could leave owners driving a vehicle without a warranty and exposed to large repair bills while having to make car payments at the same time.

Certified used cars

What about certified used cars?

Certified used cars usually come with manufacturer-backed warranties. While owners can get these vehicles repaired at any franchised dealer, the cost is sometimes thousands more than a comparable used car with a service contract from an independent provider.

Our advice is to research and compare the different prices and plans. For buyers planning on moving out of the selling dealer's area, a certified vehicle may be worth the additional cost since these programs are accepted by all dealers that sell that brand of car. For instance, a Certified Pre-owned Chevrolet can be serviced at any Chevy dealer.

As we see it

For consumers considering financing a vehicle with a subprime car loan, it's important to at least consider a used car service contract. Ideally, it should cover the entire term of your finance contract. But also remember that this decision is up to the buyer and it's not a requirement from any lender.

One more thing: Auto Credit Express matches people that have experienced difficulties with their auto credit to those new car dealers that can offer them their best chances for approved auto loans.

So if you find yourself in this situation and you're ready to reestablish your credit, you can begin now by filling out our online auto loan application.