We see many of our visitors at CLF looking for the best auto loan companies for bad credit applicants. There are many ways to look at getting approved for an auto loan if you are what they call a “bad credit applicant”. You can try getting approved with an online lender (online only), or you can try to get approved with a more conventional lender, in your own home town or city.
As usual, with any kind of bad credit loan, your choices depend completely on your own special circumstances. If you need a car loan and have a damaged credit rating there certain realities to consider, and of course you want to make sure you choose a reputable lender before you even apply for the car loan.
As a quick note, we’ve seen many borrowers on our site looking for an auto loan based on a zero down payment and a simple, quick signature. Signature loans for cars are very unusual, so you may want to save your time and efforts with this kind of loan. You are best off to shop around your local lenders, dealerships, and conventional banks first, before going online to apply. Why? Because you many have some local dealerships that sell new or used vehicles (and there are many good deals out there on used cars these days), and you may have a much better feeling of security when you actually deal with salesmen or loan officer face to face. There is still MUCH to be said for the personal feel good relationship when it comes to getting a loan for a car, which could range between $3000, $5000, and as high as $100,000 – all depending on your financial situation and your vehicle needs and wants.
Fast Auto Loans from the Best Lenders
On a pure numbers count, it’s obvious that borrowers who are using the Internet to get a car loan either have bad credit, or they want a speedy auto loan. The latter is by far the most common kind of inquiry we see here, but the best lenders don’t usually approve car loans that fast.
If speed is the highest priority, and you have bad credit, you may be setting yourself up of frustration and disappointment. Yes, I know that many car loan web sites online (hundreds of thousands actually) claim to approve car loans quickly and easily – many claiming to have you approved, the money in your account, and YOU behind the wheel of your new car the next day. Some of the lenders promise to guarantee you approval overnight.
When you see these kinds of claims and guarantees, be very careful you are not dealing with a predatory lenders that are attempting to gouge you with stupidly high fees and APR levels. Some of these lenders will even ask you to make your first monthly payment up front before they even deposit the funds in to your account! Watch out, and never sign a document (online or off) if the lender asks you pay money up-front and in advance.
When it comes to auto loans, speed should not be your biggest concern. You are far better off just forgetting about an overnight loan, and be more focused on finding a fair lender that will work with you and your poor credit rating. Applying for an auto loan should NEVER be an emotional or hasty decision. your decision should be made carefully, and pragmatically – try and pretend your getting a car loan for a good friend or family member. By detaching yourself emotionally from the process, you will make much better decisions, and as a result, you will certainly get a better price on the car, and the best (lowest) APR possible.
If you are careful to find the best possible car price, and best possible interest rate, you will saving thousands of dollars over the term the loan. We will be including some examples below for different auto loans, and we will calculate the loans using various interest rates that would be typical for a borrower who has a bad credit rating. The best thing you can do is follow through on your research, and this is why we post examples showing APR, installment periods, length of loan, total interest paid, including monthly or biweekly payments.
The Auto Loan Procedure Used By The Best Lenders
There is typically a common lending procedure used by the best auto loan lenders in market. Below is a list of the different criteria we have found in common with the better lenders in the vehicle financing market. We have done this in a bullet point format;
- the lender never asks for a payment up front
- the lender checks with the major credit reporting agencies to find out what your FICO score is
- the lender checks to see if you have any outstanding debts on your name, and/or you have any previous Charge-offs
- the lender confirms your monthly income
- the lender checks your monthly payment responsibilities with other debtors
- the lender calculates your personal inflation rate
- the lender checks to see if you are a risky loan candidate
- the lender calculates your personal risk score using their software and then decides on the interest rate they are willing to lend you money at
- the lender contacts the dealership (depending on if you use a dealership or not) to confirm the car or truck you want to buy
- the lender writes up the auto loan, and contacts you for signing the loan agreement
- the lender deposits the monies in to your personal savings or checking account or;
- the lender EFTs (electronic funds transfer) the money directly in to the car vendor’s bank account
As you can see, the best lenders will make darn sure that their concerns have been satisfied, and they make sure you can handle your monthly or biweekly car payments.
They have to make sure the loan agreement works best for all parties concerned – if they don’t make sure the deal is the best deal for all parties concerned (you, them, their creditors, and the vendor) they are risking default on your part, and a possible repossession situation. Believe me, a reputable lender covers their butt completely, and they won’t approve your car loan if they think you are over-extended on a monthly basis.
Best Bad Credit Auto Loan Scenarios – Three Lender Examples
Now we get down to the nitty-gritty of the whole auto loan procedure – the math! Here we will outline the details of auto loans taken out by borrowers who also have bad credit rating. Each example has the calculations so you can see the following data;
- The auto loan amount (the principal to be paid)
- The interest rate, or APR
- The total amount of interest paid during the entire loan period
- The period length between your payments (biweekly or monthly)
- The total amount of money paid to the lender to pay off the car
Scenario #1 – Bad Credit Auto Loan for $25,000 – Best APR 12%
In this bad credit auto loan scenario we have a principal loan amount of 25,000 dollars, APR of 12% which is the best the lender could approve, a monthly payment schedule, total length of loan in years being 5 years. Outlined in bullet form below;
- principal on auto loan = $25,000
- APR (annual interest percentage rate) = 12%
- total loan period = 5 years
- payment schedule = monthly
After using our calculator below (which you can also use) the totals are as follows;
Auto Loan Calculation Results:
Total Amount to be payed = $32,623.57
Total amount of interest = $7,623.57
Monthly Payments = $536.28
Notice that this loan agreement has the borrower paying a total of over $33,000 dollars over the 5 years. This is a rather expensive loan coming in at a total interest cost of over $7,600 dollars.
Scenario #2 – Bad Credit Auto Loan for $20,000 – Best APR 15%
In this bad credit auto loan scenario we have a principal loan amount of 20,000 dollars, APR of 15% which is the best the lender can approve, a biweekly payment schedule, total length of loan in years is 10. Outlined in bullet form below;
- principal on auto loan = $20,000
- APR (annual interest percentage rate) = 15%
- total loan period = 10 years
- payment schedule = biweekly
After using our calculator the totals are as follows;
Loan Calculation Results:
Total Amount to be payed = $35,057.58
Total amount of interest = $15,057.58
You can see that this borrower is paying a large amount of interest over the ten years of paying biweekly (every two weeks) payments. This borrower would have a bad credit score for sure. Their FICO could be as low as 500 to 550 (maybe worse depending on the processes and guidelines of their bank)
Scenario #3 – Bad Credit Auto Loan for $15,000 – Best APR 9%
In this bad credit auto loan scenario we have a principal loan amount of 15,000 dollars, APR of 9% which is the best the lender can approve the borrower, a monthly payment schedule, total length of loan in years is 3. Outlined in bullet form below;
- principal on auto loan = $15,000
- APR (annual interest percentage rate) = 9%
- total loan period = 3 years
- payment schedule = monthly
After using our calculator the totals are as follows;
Loan Calculation Results:
Total Amount to be payed: $17,080.86
Total amount of interest $2,080.86
You can see how the third example is the best possible scenario as far as the total amount of interest paid on the borrower’s auto loan. However, the monthly payment total is very high – over $900 per month. This is the best way to borrow money but a rare situation. This kind of payment is too much for most borrowers/car owners/applicants.
This is how auto loan companies and banks make their money – they make it over time. Time is really money, and the best lenders KNOW this. They’re the best because they approve more loans for more borrowers more often. They do their research and due diligence to make sure their lenders are not too risky.
Even more key, is the the best lenders have qualified loan officers that can talk borrowers in to getting their auto loan at relatively high APRs. These loan officers mostly just use a software program to figure out the best possible interest rate that the borrower can handle, at the same time giving their bank – or private lender – the best possible profit, or ROI (return on investment).
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