Say “no” to long car loan terms when you have bad credit


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A bad credit score usually means a higher auto loan interest rate, which is exactly why you should go for the shortest loan term you can afford!

The cost of long-term loans

Unless you qualify for a 0% new car deal, you will need to pay interest charges over the life of your loan. The higher your interest rate and the longer the loan, the more interest charges you will have to pay.

Auto loans are almost always low interest loans, which means you are charged interest on the remaining loan balance. The faster you pay off the vehicle, the less interest you pay. Therefore, it is in the best “interest” of every borrower to choose the shortest loan term they can afford.

People with bad credit or no credit are generally eligible for higher interest rates. If you are getting a high interest rate, it may mean that your credit history is not the best. Not having credit is not necessarily a bad thing, but it can increase your risk as a borrower. If you are a bad borrower with a difficult credit history, that means you will likely need a subprime lender to get funded and will have to work to fix your credit history.

Auto loans can be a great way to build or replenish your credit if you stay up to date on payments. Plus, a stronger credit history can help you benefit from lower interest rates in the future. Right now, however, there are ways to help offset the higher interest charges you are likely to face.

Duration of your loan

It can be tempting to go for the longest possible loan term, and we don’t blame you. The longer the loan term, the lower the monthly payment. It is easy to choose this option because it releases more income every month. But you might not see the negative impact of a long term loan at first glance.

To illustrate the effects of a long-term loan, let’s use this example:

  • Auto loan amount: $ 10,000
  • Interest rate: 12%
  • Term of the loan: 84 months

With this loan you will end up paying $ 4,829 in interest, and a total of $ 14,829 for the car, even if you only financed $ 10,000. The interest charge in this example is almost half of the amount you originally financed.

Now let’s shorten the loan term:

  • Auto loan amount: $ 10,000
  • Interest rate: 12%
  • Term of the loan: 60 months

With a loan term of 60 months, you will end up paying $ 3,346 in interest, and a total of $ 13,346 for the vehicle. By simply shortening the term of the loan, you would save $ 1,483 – about six car payments!

While the longer loan term means paying $ 46 less each month for your vehicle, it costs you well over a thousand dollars over the course of the loan. When financing anything, you need to think long term – and stretching your loan to the max can mean spending extra cash over the life of the loan.

Down payments and interest charges

If you don’t want to extend the term of your loan but are looking to lower your monthly payments, a down payment can save you a lot of money on interest charges. and car payments. Also, an equity swap is a great way to reduce the amount you fund and can help you meet the down payment requirements of bad credit auto lenders.

Using the same example as above, now let’s add a down payment:

  • Auto loan amount: $ 10,000
  • Interest rate: 12%
  • Term of the loan: 60 months
  • Deposit / exchange equity: $ 2,000

With a down payment, the loan amount drops to $ 8,000, your monthly car payment would be $ 178, and the total interest you would pay is $ 2,678. Combine a down payment and a longer loan term, and you save a lot of money!

Auto loans for bad credit

While having bad credit means that you are probably only entitled to a higher interest rate, that doesn’t mean you have to settle for a huge car payment or pay thousands in fees. additional interest.

Extending the term of your loan is very tempting, but it costs you more. In addition, the longer the loan term, the more you have to worry about the payments of the vehicle. The faster you pay off the car, the less you spend backwards on the loan, and the faster you’ll have one less bill to pay each month.

If you’re a borrower with bad credit and looking for your next car loan, we want to help. Here has Auto Express CreditWe know the ins and outs of auto finance because we have a nationwide network of dealerships that work with borrowers in many types of credit situations. Start here with us and complete our free auto loan application form, and we’ll search for a dealership in your area with bad credit loan options.

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