How Can Dealerships Accept Bad Credit Auto Loans?

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 month’s 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.

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