Second chance auto loans are a lot like cars; They come in many different makes and models. If you've spent any time at all looking at daytime or late night TV commercials, you can't miss the "bad credit, no credit, no money down, everyone's approved" spiel coming from everybody from "Uncle Bob Used Autos" to the "Car Credit Doctor."
Types of Second Chance Auto Loans
Second chance loans, also known as bad credit auto loans or subprime loans, can be separated into two categories - dealer financed loans and bank financed loans.
Dealer financed loans
, known as "buy here pay here" or "tote the note," are loans in which the borrower makes the payment directly to the car dealer. The typical cars at these "buy here pay here" lots are older, higher mileage used cars. The reason they can approve anyone is because they don't use banks or third party lenders. And these guaranteed auto financing car dealers
rarely report your payment history to the credit bureaus. It's this type of loan that you'll see being advertised in those "guaranteed financing" commercials. The dealer can "guarantee" financing because the price you pay for the vehicle will be very high compared to its value.
Bank financed loans
are made through dealers. This is referred to as "subprime, "indirect lending," and "special financing." With these loans, you buy the car through a dealer and make your payments to the bank, just as you would for a traditional auto loan. Cars sold in this type of program are generally newer, lower mileage used cars. In fact, some of these banks will even finance new cars.
In order to stay informed, these are the things you should keep in mind if you are in need of one of these loans:
- Know what's in your credit file as well as your credit score.
- The subprime buying process is different compared to the standard buying process. The bank looks at your income and your debts and budgets you for a monthly payment. Make sure that your Debt to Income (DTI) ratio isn't too high (more than 40%).
- Once you know how much you can afford, you'll select 2 or 3 cars on the lot that you are interested in that fall within that range and look up their respective used car values. Both Kelley Blue Book and NADA have web sites where you can research vehicle prices.
- Research the insurance rates on comparable cars. Rates can vary dramatically between different makes and models.
- Once you settle on a car, have it inspected by an ASE Certified Master Mechanic.
Finally, remember to be realistic in your expectations. You are not looking for your dream car. Wait until your credit is repaired for that one. For the time being, look for good, reliable, transportation.
If you are curious about what kind of payment to expect, you can use our financing calculator.
This tool can be used to give you an idea of what your monthly payment will be with interest rates and loan terms. Auto Credit Express is here to help you with financing questions and to provide fast online quotes. While many auto dealers don't even offer bad credit car loans
, our network of affiliated dealers specialize in second chance auto loans for people with credit problems. Remember, we want you "on the road" to better credit!