Bad Credit Car Loan Myth
Many believe that once you develop bad credit, you won’t find it easy to obtain a credit card, car loan, or home mortgage. Although this belief may hold some form of truth in prior decades, in today’s auto market, this can no longer be considered a fact. Perhaps the only reason why this myth continues to exist today is not because it’s just not possible to borrow money with bad credit to your name but because of inaccurate threats made by unscrupulous credit collectors. The fact of the matter is, even the person with the worst credit out of a hundred bad credit reports can still get a car loan, credit card, or home mortgage.
Bad Credit Car Loans: Look for Other Alternatives
When you have bad credit, this doesn’t mean that opportunity will no longer knock on your door. The door to world of credit may be closed to you but a window is left open to show you another alternative. There are many lending institutions that specialize in providing car loan programs for borrowers with bad credit, poor credit, or bankruptcy. The issues involved may vary but one thing is for sure: you still have a chance to get a car loan even with bad credit.
Depending on the severity of bad credit, lenders charge different interest rates to each of their borrowers. These car loan rates are somewhat higher compared to the rates offered to those people with good credit. While this might seem surprising or even offensive for some, it is only understandable that lenders are entitled to protect themselves from the risk they’re taking.
Bad Credit Car Loans: How Interest Rates Behave
You can compute interest rates of any form of financing, be it car loans or home mortgages, by taking into consideration the general rate of interest nationwide at the time the car loan is made and the specific risk of the particular loan in question. The most prevailing interest rate in the US is the prime rate, which is the rate issued by most banks.
Credit is added to the prime rate so that the total car loan credit would be prime plus the percentage of interest that the lender charges. On unsecured personal loans, such as bad credit car loans, lenders tend to increase the underlying rate to compensate for the risk factor involved.
Bad Credit Car Loans: Where to get them
Most bad credit car loans are available through direct financing. The business of direct financing works the same way as that of good credit car loan. They only vary in that borrowers with bad credit or bankruptcy are expected to make larger down payments and pay higher interest rates for their car loans. Lenders can offer you car loans even with bad credit for down payments amounting from 20% to 50%.
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