Auto Loan Options
For Bad Credit Borrowers

presented by Attorney Mory Brenner




        More and more bad credit auto loan ads these days bombard debtors and other bad credit borrowers with the concept that they can buy a car or truck no matter what their credit may look like. Although most of these ads are based on truths, in this article I will carefully review some of the bad credit auto loan pit falls to be aware of, and help debtors to understand how some of these systems work.


        The direct finance business works as a good credit auto loan would from your local bank, except borrowers with bad credit will be expected to bring in a larger down payment and pay a higher interest rate. Most local lenders, of course, will not make these loans at all to borrowers with bad credit. Depending on the severity of one's bad credit, down payments for these loans can range from 20% to 50% and depending on the credit and legal limits of the state one lives in, interest rates can range from 5% to 26%. I have even seen in a few states extreme cases where borrowers already owning cars use their vehicles as collateral for very short-term loans. The effective interest rate can be as much as 144% per year. These loans, sometimes called title loans, offer a short-term loan at 12% per month, so when the loan can not be paid off another loan at 12% must be taken. Such lending is illegal in most states and even where allowed I can think of almost no situation where taking out such a loan would represent a prudent financial decision. In most cases debtors with bad credit should expect to pay in the 7% to 18% interest range. What is defined as bad credit varies from lender to lender, but in today's world of tight credit, it does not take much to get knocked off the great credit podium. Knowing and understanding you credit score always helps. If your credit sits just below the grade you need some tips to raise your credit score fast might help. Amortization (the time needed to pay the loan in full if all regular payments are made) choices offered may only range from 2 to 4 years opposed to good credit borrowers whose auto loans may extend for as long as 5 to 7 years. Certain amortization schedules and higher interest rates combine for payments that can be considerably higher than for those with excellent credit. The good news is that if these loans are paid on time they can also serve as tools for rebuilding credit. Dealers who advertise their willingness to work with bad credit auto purchases often ultimately finance the transaction with one of the direct lenders as described above. Dealer's who finance these car loans internally sometimes combine of these things where they secure an external financing source by guaranteeing a part of the loan or allowing a part of the loan to remain unfunded until certain auto loan payments are made.

        The greatest abuses in bad credit auto lending come from dealers who artificially inflate the prices of their cars and or the interest rates charged for the financing. A common tactic is for a dishonest dealer "specializing in bad credit purchasers" to take a car normally sold for $3,000 and inflate the price to $6,000, take $1,500 down and finance the balance at 24 to 26%. The reality would be that the borrower not only obligates themselves to a contract at a very, very high interest rate but that the underlying debt and price for the car bear no realistic relationship to the value of the vehicle. This leaves the borrower in a position that ultimately they will default on the loan further ruining their credit. Otherwise they will complete the contract by which time they may have paid double or triple what they would have for the same car if they had purchased it from a legitimate dealer at a legitimate price. The watch word here is "caveat emptor," let the buyer beware, some dealers advertising they work with poor credit purchasers may be honest and forthright dealers. The best consumer protection is knowledge. Research the true value of the cars you are purchasing and try to pay only the wholesale cost or trade in quote plus a $200 to $500 profit for the dealer. In only the rarest of instances should you pay more than the retail price of the car. Services like Kelly Blue Book help bad credit car loan customers learn in advance what they should pay for a used auto.

        Sometimes purchasing and financing a car through a dealer works to the buyers' advantage. A company dealing in the finance operation only must make all of their money from the financing where the dealer also makes part of their money from the sale of the vehicle. In some instances the incentive to sell the vehicle for the dealer and can mean financing concessions or less constringent guidelines. Certain dealers may even sell a new car at cost to move it off their lot so they can stop paying the financing interest costs themselves or because they feel they can develop a servicing and repair relationship. Surprisingly, this emerges frequently as a situation when purchasing a brand new vehicle. With a sizable down payment it may actually be easier for borrowers with bad credit to obtain financing for a new vehicle financed by the car manufacturers own funding arms because of the company's incentive to sell their new cars. Purchasers of new vehicles can also be aided by the fact that interest rates are lowered in these transactions. Newer cars generally merit lower interest rates than older cars and amortization for new cars are longer too. The result maybe that the payment for purchasing a new car may be the same or lower than payments may be purchasing a used car. As with bad credit consumers looking at used cars, know the invoice pricing for a new car and try to pay $500 or less over invoice when you can. In some cases car dealers need to more inventory so bad that they will sell autos below invoice. Use the invoice price link to not only find the dealers cost, but also to see the average prices car dealer have recently offered to move autos off their lot, including seeing if your car rates one of these below invoice situations.

        With the popularity of the Internet and the mass marketing capabilities of television, two new types of marketing have emerged for someone with bad credit to obtain an auto loan. The most prevalent advertising of this type on the Internet is a dealer network system. A potential customer can click on a site advertising that they can purchase a car regardless of their credit. The site requests certain information about the borrower. This information is then passed along to a dealer capable of working with purchasers who have a problem in their credit history. How well these systems works will depend on the dealer used. It can be possible that the same referral network can have good and bad dealers.

From the consumer point of view, since no fees are involved, the only caution is to understand the type of site you are working with and what they're doing with your information. Individually these systems usefullness will depend on their geographic coverage. While some of the programs have 15 dealers and some have 1500 each network has it's own gaps in coverage. Some software systems link many of these bad credit auto dealer networks to give the buyer the best chance of connecting with a dealer who can help them.

        Application services, predominately found on the Internet, involve automatic multiple submission of financial information to potential lenders. In this case, the potential borrower fills out some in depth financial information. The coordinator of the network then forwards the information to lending sources that may be willing to make the loan. When all works correctly, the borrower hears from four lenders who then fight for the loan by competing against each other to offer the best rates and amortization. For bad credit auto loan candidates it may be more a case of one or two lenders coming forward without much fighting, but where not many sources exist this can be a great time saver. This method allows you to find your own car online or through a local classified ad rather than only select from the auto inventory offered by the dealer with the bad credit loan program.

        In most of these cases, either the car dealers or lenders may contact the borrowers directly. If you don't have a car in mind already the dealer networks may be quite helpful in directing you to someone who has an inventory of vehicles and the experience and capability of securing a loan on the vehicle you wish to purchase. If you already have a vehicle in mind and are having trouble finding a financing source the multiple submission networks may be helpful. In peroids of tight credit nationwide, bad credit car loan customers often find their best chance for an approved transaction using the dealer networks.

        Even with all of these opportunities which will allow "almost" anyone to obtain vehicle financing some borrowers will fall into the category that can not. People with no down payment whatsoever and bad credit may find it very difficult getting car financing. Debtors in the middle of bankruptcy proceedings may find that financing is not available until their bankruptcy case has concluded. People with monthy income under $1800 may find obtaining a car loan harder and people under $900 monthly might dicover no options. Others may be pleasantly surprised to find financing only to realize payments on these loans beyond their means.

         Don't be discouraged if your first few attempts at financing fail or if you have to settle for your second or third choices of vehicles. With perseverance, and if needed a little polishing up of your tarnished credit, you should be able to obtain safe and reliable transportation despite a previous bout of bad credit or bankruptcy.

For a directory of lenders, dealer networks and loan submission services visit:
Alternative Financing Sources - Car and Truck Loans

To find a used car visit our
Used Car Meta Search Page


For more information on borrowing money with bad credit visit:
Click here to begin your introduction to lending for borrowers with bad credit. Click here for information and guidance on obtaining a home loan despite having damaged credit, history of bankruptcy, or other unusual loan issues. Click here for information and guidance on credit card companies who lend to people with bad credit. Click here to begin your introduction to lending for borrowers with bad credit.

    RoadLoans - Auto Finance and Refinance Made Easy! Bad Credit Welcome To Apply            

Other sites for those with debt or bad credit by Attorney Mory Brenner:

Bankruptcy Alternatives / Debtor's Options
FAQs examining the debt itself, personal issues and many resolution options including workouts, payment and bankruptcy. 
Debtor Links
Sites for debtors on bankruptcy, workouts, credit counseling, IRS, credit rebuilding, and more! US, UK and Canada. 
Alternative Mortgage Sources USA
Links to lenders and mortgage brokers throughout the United States offering home loans to individuals with credit problems, bankruptcies or foreclosures. Apply On-Line service available.  
Alternative Finance Sources USA -Car Loans
Links to lenders and finance companies throughout the United States offering refinancing, new or used car loans to borrowers with credit problems, bankruptcy or foreclosures on their credit report. Includes a nationwide used car search engine.
Alternative Finance Sources USA -Credit Cards
Links to lenders and credit card companies granting credit cards to those with credit problems, bankruptcy or foreclosures on their credit report. Debtors-Please use this page to help rebuild your credit, not incur more debt!



For information on retaining or consulting with Attorney Brenner
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Nothing contained herein should be construed to constitute advice for your personal circumstances. This is intended as a peripheral exposure to the various options available, but by no means is this a comprehensive or exhaustive analysis of the bankruptcy laws or their alternatives. Whether or not you should file a Chapter 7, Chapter 13 or any bankruptcy, will vary depending on your personal circumstances and should only be undertaken after careful consideration, analysis and after consultation with an attorney experienced with such matters. These pages may contain information and rules peculiar to the Commonwealth of Massachusetts.

This material may be considered advertising under the rules of the Supreme Judicial Court of Massachusetts. Web site design by Mory Brenner. This page, and all contents, are Copyright (C) 2011, all rights reserved, by

Financial Firebird Corporation, 150 North Street Suite 40, Pittsfield, Massachusetts 01201.

The most recent update of this page occurred on 4/13/2011.