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Bad Credit Auto Loans: 3 Pitfalls to Avoid
Bad credit auto loans are something to avoid if at all possible, but sometimes this just isn’t viable. If you absolutely must take a bad credit loan (and sometimes you truly do have no choice), you can at least make sure you aren’t trapped by any of these pitfalls that should be avoided at all costs.
Pitfall 1: Focusing on Monthly Payments
It’s vital to look at how much the car will cost you over the entire time period, and not just the monthly payments. The longer you take to pay off a loan, the more you will be paying in interest. For the higher interest rates of bad credit loans, this difference can be enormous. Be sure to look at the total payments made over shorter time periods, and choose a finance term that is as short as possible while still being a viable monthly charge.
Pitfall 2: Adding a Warranty or Extras
If you’re getting a bad credit loan, your focus should be on getting a car as inexpensively as possible. If you can get a used car in driveable condition for less than $10,000, that’s a better choice than financing a new car on a bad credit loan. Don’t add any extras to your purchase that aren’t absolutely vital. If you do, you’ll end up paying far more for them than anticipated.
Pitfall 3: Making Frequent Trade-Ins
Every time you trade in your car, you can expect to lose a minimum of $4000 on the vehicle. If you still owe money on it, this is an especially terrible idea. Keep your car for as long as possible if you expect you’ll have to take out a bad credit loan to purchase a new one. Even expensive repairs are often preferable to financing the purchase of a car.
If you are forced to take a bad credit auto loan, make sure you finance as little as possible and pay it back quickly.
