Getting a loan with bad credit isn't impossible, but there are some things you should know about auto loan terms with less than perfect credit.
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If you have less than perfect credit and finance a car, you can expect to pay higher interest rates. An average car loan's interest rate for someone with good credit is between 6-8%. With bad credit you will end up paying closer to 14-20% interest depending on the lender. This will translate in to much higher monthly payments. Although having a car loan reporting on your credit record will help to increase your credit score. After you've had the car for awhile and have made your payments on time each month, you may be able to qualify for a loan refinance to lower the interest rates.
While someone with good credit will be able to finance a car over as long as 72 months, if you have bad credit, you will not be given an option to finance for this length of time. In most cases you will need to finance the loan from 12-36 months. Since your car will be financed for a lower period of time, your monthly payments will be higher. For this reason, it's a better idea to find a car for a lower amount. After you've improved your credit you can look in to trading the car for a model with the features you'd like.
Dealers who specialize in bad credit financing will want a higher down payment than other dealers. They do this because they want to insure that if you default on the car, they have made enough money up front to protect their investment in you. On the same token, the more money you put down, the more you stand to lose if you default, making it less likely for this to happen. It gives you a bigger incentive to make your payments on time every month. You can expect to be required to put 20-50% down on a car if you have bad credit.
With most car loans you are expected to make the payment once every month. With bad credit the lender may want to set up payments that run concurrent with your pay cycles. Basically, if you are paid bi-weekly the lender may require payments on a bi-weekly basis. This can seem a lot easier to most people since the payments won't be as high every other week, so it doesn't seem to hurt your paychecks as badly.
In some cases the lenders may require that you pay the car dealer directly and not mail payments in. This usually only happens if you finance your car through a second chance dealer.
As long as you know what you are getting into, finding a lender who will finance your car with bad credit isn't an impossible task.
