The Cost of Bad Credit Car Loans

Often you will find lenders assuring that you can get a loan in spite of having bad credit, damaged credit or no credit at all. But, have you ever wondered how expensive these loans are? Most sub-prime lenders offer these loans at much higher interest rates, generally three percentage points above the interest rate at which a prime borrower having good credit would get it.

Interest rates are influenced by several factors, including the severity of credit problems, the amount of down payment and the degree of credit risk.

A car salesman will try to lump this stuff together. Don't let him. Auto sales personnel like to move the profit around so they think you won't be able to find it. For example, you may be so thrilled at the interest rate the dealer is quoting on the loan that you may not notice when the purchase price of the car gets bumped up.

Avoid being suckered into buying based on what you can afford for monthly payments. Under no circumstances tell a car dealer your budget or what you can afford to spend-a common and critical consumer mistake. This is the number one biggest mistake you can make when shopping for a car. Many times the first question the salesman will ask is what you would like your payment to be. Do not shop for a car based on payments. The dealer can make the payment whatever you need it to be. You say you can afford an auto loan for $300 a month? Voila! Here is the perfect car for you and they have made the interest rate 16% to achieve your $300 payment. Always negotiate the price of the car and the terms of your car loan separately.

When it comes time to buy a new car and trade-in your old one, it is important to realize that these are two entirely separate transactions. You should negotiate them as such. Many believe the best way to do this is to tell the dealer you have not made a decision on what you will do with your old car (in this instance this is true!). Once you have negotiated the best deal on the new car AND have it in writing, then tell the dealer you have decided to trade your old car after all. This will force them to negotiate the deals separately.

When you look at the value of your old car and the price of the new one together, they will simply play with the values of one or the other to equal out. If they give you a great deal on the new car, they will give you less than wholesale on your old car. Or they will give you a great price for your old car and expect you to pay full MSRP (Manufacturer's Suggested Retail Price) for the new car. It is easy to hide this as your auto loan amount appears to be lower but you will end up paying more than you would if you had negotiated the two separately.

If you shop for a car loan at banks and other lending institutions you'll be well informed and can make the best decision as to which financing is best for you-with a lending institution or with the dealership.