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6 Things to Know Before You Buy a Car With Bad Credit

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There are plenty of companies that have no reservations about taking advantages of vulnerable consumers - like people buying a car with bad credit. If you're trying to buy a car and you don't have the best credit score, realize that your credit makes you a risky borrower, even if you can afford to purchase the vehicle. Here's what you should know as you're shopping around.

You'll have a higher interest rate. The cost of borrowing money is directly tied to your credit score. When you take out an auto loan with a low credit score, you can bank on having a higher interest rate. Interest rates could be 17% or higher when is expensive when you consider people with higher credit scores have interest rates at 5% or lower.

Your monthly payment will be higher. Because your loan payment is tied to your interest rate, you'll also have to pay a much higher car note each month. At at 17.149% APR, your monthly car loan payment would be $748, on a $30,000 60-month auto loan. By comparison, the monthly payment would be $562 on the same loan with a 4.715% APR. That's a savings of almost $200.

A used car may be more expensive. Most people assume a used car will have lower monthly payments because the retail price is lower. However, lenders usually charge higher interest rates on auto loans for used cars. That means your monthly payment would be higher if you buy a used vehicle with the same price and repayment length as a new one.

A longer long period isn't always better. Generally speaking, the longer your loan term, the lower your monthly payment will be. That may seem like a great way to get a car you can afford. But, spreading your payments over a longer period of time means you'll have to pay more in interest overall. It makes buying your car much more expensive.

Getting a cosigner can help. The lender may base the loan terms on the cosigner's credit instead of yours, which can help you get a better interest rate and lower monthly payment. But, the cosigner is on the hook for the payments just as much as you are. If you're late on any payments, the cosigner's credit will be affected too. Something to consider before you ask someone to take on a risk on your behalf.

Don't assume you can refinance into a lower payment. It's possible, but you don't know whether interest rates will be higher or lower in a few years. There's also no guarantee you can qualify for better terms. Worst case scenario, you may be stuck with your current loan. Make sure you can live with whatever loan terms you can accept.

You may have less flexibility in your loan terms, but that doesn't mean you have to accept a terrible deal. If you can hold off on your car purchase, improving your credit score first will help you snag a better deal.

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Comments 2

Wanderer on Saturday, 13 July 2019 03:20

This is a reality check. What is real in auto loan refi's.

This is a reality check. What is real in auto loan refi's.
Frank on Monday, 26 August 2019 13:30

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Monday, 16 September 2019

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