What Is a Bad Credit Auto Loan Rate?
A bad credit auto loan is a car loan made to a consumers with a low credit score. The cutoff score varies from lender to lender; however, it's usually applicable to scores that are 620 or below. Consumers with such scores are considered subprime borrowers.
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Function
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A bad credit auto loan gives consumers the opportunity to buy a car when they don't qualify for traditional financing. Not all dealers offer such loans, however.
Features
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A bad credit auto loan will have a higher interest rate than a traditional loan. It may also require a large down payment.
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Effects
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Since bad credit auto loans have higher interest rates,the loan will cost the consumer more money overall. It may also lead to bigger monthly payments.
Benefits
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If a consumer makes on-time payments with a bad credit auto loan, the positive payment history can actually improve his credit score over time.
Warning
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Bad credit auto loans may include hidden charges and a pre-payment penalty, which means the consumer will pay a fee if she pays the loan off early or refinances with another bank.
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