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You've probably seen the advertisements on television from auto dealerships who claim to be able to work with any buyer to get an auto loan, regardless of your credit history. "Bad credit or no credit, as long as you have a job, we can get you a guaranteed auto loan!" This seems to be the motto of this sort of dealership. But how exactly are they able to offer auto loans for people with bad credit, when no one else will take on the bad credit borrower?

Auto dealerships can choose to offer you a loan if you have bad credit because they are the ones extending you the credit. There are a few things that will allow an auto dealership to offer guaranteed auto loans for bad credit. The first thing you should know about these loans is that the interest rate on a bad credit auto loan is almost always going to be higher than financing that you apply through for through a credit union, bank or other financial institution. Sometimes auto dealerships will charge up to 20% interest on a bad credit auto loan. Over time, this high interest rate will make it almost impossible to pay off a bad credit auto loan.

The second thing you should know is that the reason why dealerships can offer an auto loan for bad credit is that your new car is collateral for the loan. Which means that, if you should default on your auto loan payments for ninety or one hundred and twenty days, the auto dealership can choose to collect the collateral, or, in other words, repossess your car.

Many of us can relate to having hard times with money, and sometimes, when there is no other option, a bad credit auto loan can be a good idea for some people. The good news is that, if you make your payments on time for your a bad credit auto loan, that in and of itself will help your credit rating and bring your credit score up when it is reported to the three major credit bureaus. In six or twelve months time, you might even qualify for better loan terms and, at that time, you can look into refinancing your auto loan at the best interest rate.

When you get ready to purchase a vehicle, typically, the auto loan that you apply for is what is called a secured loan. What this means is that the bank, dealership or financial institution is using your car as collateral for the loan. The automobile secures your credit with the bank or dealership. If you default on the auto loan, the people who extended you the financing have the legal right to repossess your car.

For people who want more flexibility in their auto loan, it is possible for you to apply for what is called an unsecured loan. Many financial institutions provide unsecured loans for customers. The terms of this loan are similar to a personal loan or line of credit. You must repay the entire loan within the term set by the loan, including interest, until the loan is completely repaid. However, with an unsecured loan, you car is not considered collateral to the loan. Also, with an unsecured loan, the type or age of the car is not a consideration as part of the criteria for getting the loan. The financial institution is extending you the credit based almost entirely on your personal credit history and credit score.

As you might expect, getting this type of financing is more expensive and typically has more stringent requirements than a secured auto loan. Unsecured auto loan financing, or any type of unsecured credit, is almost always more expensive over the long term than secured credit, because the interest rates are higher. You also usually have to have a better credit rating in order to qualify for this type of loan. However, the up side of unsecured auto loan financing is that you will not be risking repossession of the vehicle if you do not repay the loan. However, your lender may still resort to legal proceedings if you do not repay the loan, so dont be overconfident. Before you apply for unsecured auto loan financing, make sure you will be able to repay the credit and that it is the best auto loan option for you.

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