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Bad Credit Car Loans
Notwithstanding the existence of three-digit credit scores and detailed reports of consumer spending habits, analyzing consumer creditworthiness is still not entirely scientific. There is at least a little art left in the process, as well as a bit of psychology and economics. The existence of secured credit cards and bad credit car loans indicates that lenders are still trying to bring financial services to people with less than perfect credit.
People can end up with bad credit reports in about as many ways as there are to mismanage money. The fact is, however, that people do change, and because of the lag in reporting financial transactions, many people are developing new financial habits that may not translate into a higher credit rating for some time. To capture this end of the market, car dealers put a great deal of thought and effort into developing bad credit car loans.
Good, bad and ugly
With any numerical rating system for credit risk, and any sort of formula, there are bound to be people who are just barely failing to qualify. Car dealers will institute a range of offerings to cover the entire spectrum of borrowers, with interest rates and down payments increasing for buyers with lower scores. These bad credit auto loans serve a dual purpose of capturing additional business for the car dealers and putting marginal credit risks in a new or used car.
The worse the credit rating, the greater the down payment and the interest rate will be. This sliding scale terminates at a credit rating so low as to require the outright purchase of an auto. On the other hand, buyers who have recent good reports – either integrated into their credit ratings or determined through phone calls to other creditors – can expect lower interest rates and down payments. Bad credit car loans can be tricky for a dealer to calculate.
Some will, some won’t
Although making some provision for bad credit car loans is an accepted part of the car business, not all dealers will go to the same lengths to capture the marginal buyer. Other dealers actually specialize in these kinds of loans, and if they’ve developed a good system, part art and part science, for determining the best risks in the “bad credit pool” of consumers, then they can do quite well.
Buyers should be aware that specific and positive credit experiences can be considered by a lender even when their credit score, generally, is low. That is, some consumers have successfully paid off auto loans even as they’ve let their smaller credit card balances go to collections. Dealers are more likely to work with a buyer like this than one whose bad credit reflects repossessions and bad car loans.
Car loans are collateralized, at the very least, by the automobile itself. Don’t pay and your car is gone. To protect themselves, the lenders who do serve the market for bad credit car loans put additional effort into keeping tabs on their buyers. They will confirm employment and home addresses with some regularity, and “flag” the accounts in their computer system so that contacts are made even before payments are late. Consumers who handle this kind of loan in a positive manner are apt to see gradual but continuous improvement in their credit ratings.
Topics: Auto Loans |
