Bad credit auto loans can be obtained through auto dealerships, online lenders, and high-risk lenders. They are usually available for the people with a credit score of less than 600. Such a low credit score can happen after a divorce, bankruptcy, or poor financial decisions. Since a lot of risk is associated with auto loans bad credit, the lenders compensate themselves by charging a higher rate of interest than the normal auto loans.
To ensure that you get the bad credit auto loan on the most favorable terms, you must research the loan market thoroughly. However, this has a disadvantage because if you submit your loan application to a number of companies, then your credit score would go down even more. Thus, you need to look for an organization that would find a number of bad credit auto loans for you, but would only check your credit report once.
Another way to get a bad credit auto loan is with a home equity loan, because the interest rate on a home equity loan is lower than that on a bad credit auto loan. Moreover, the interest on a home equity loan is tax deductible. However, one of the biggest disadvantages of this type of financing is that you need to offer your home as a collateral security, and thus, if you default on the repayment of the loan, you may lose your home.
Before opting for a bad credit auto loan, you need to find out the value of the car, and then deduct the amount of money that you have from this value. This would determine the amount that you need to borrow. You must also estimate the monthly amount that you would be able to pay for the bad credit auto loan.
This will leave you with a rough idea of what your financial situation is and how it will enable or disable you to repay your loan.