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Car Loans and Bad Credit
The Auto Loans for People with Bad Credit Lens. Here you should find most everything related to the topic. I've tried to be as straight forward as I can with the lens.
If you're a consumer with bad credit and want to buy a car, a car dealer that wants to increase sales to people with bad credit, or a sub prime auto finance company, I think I've done a fair job at representing your different points of view.
My eleven years experience has taught me that there are three satisfying steps to every car sale. Most consumers want a newer car that they can buy with little or no money down and have payments that they can afford. Dealers want to sell more cars and make money. Auto finance companies want to reduce thier risk while gaining market share.
Whether your looking for research or want to apply for a car loan online you should find the resources on this lens. If something is missing please contact me. You can also post a comment to share your past experiences with other visitors.
If this is your first experience with bad credit and buying a car, or an auto dealer that has fumbled with sub-prime sales, you should read my seven part article that follows before you decide to click around.
History of Bad Credit Auto Loans and Usury Laws
Part 1
Many states have laws limiting the interest rates that lenders can charge people with bad credit. These laws were enacted with the intent of protecting consumers from rate gouging lenders. It seems like a good idea, but the fact is that states with low interest rate caps hinder people with bad credit and the credit rebuilding process.
When I first started helping people with bad credit finance cars back in 1996 Michigan had strict Usury laws. Auto loan interest rates were capped at 16.5%, 19%, and 22% depending on the year of the vehicle. Back then only a few sub prime lenders did business in Michigan. The ones that did would not approve people with really bad credit and when someone had marginal credit they would often pay the higher rates listed above. Lenders did this to balance the risk of their lending portfolios. Since their were few lenders, and the rates were capped, people with really bad credit often had to settle for a high mileage, unreliable, used car from an unreputable car lot. Each week these consumers had to drive to the dealer to make a weekly payment.
When I first started helping people with bad credit finance cars back in 1996 Michigan had strict Usury laws. Auto loan interest rates were capped at 16.5%, 19%, and 22% depending on the year of the vehicle. Back then only a few sub prime lenders did business in Michigan. The ones that did would not approve people with really bad credit and when someone had marginal credit they would often pay the higher rates listed above. Lenders did this to balance the risk of their lending portfolios. Since their were few lenders, and the rates were capped, people with really bad credit often had to settle for a high mileage, unreliable, used car from an unreputable car lot. Each week these consumers had to drive to the dealer to make a weekly payment.
Websites for Buying a Car with Bad Credit
It's important to choose the right loan type before you apply.
To reduce the inquiries on your credit report it's important to choose a finance company or service that provides the type of loan that you are looking for. Auto loan types include purchasing from a dealer, private purchases, and auto refinance loans.
- Auto Loans for People with Bad Credit
- The Official Car Financing Site of Auto Credit Express®. ACE is not a lender but a car buying service for people with bad credit. Approved auto loans are for buying a car from their dealer partners throughout the USA and Canada. Auto Credit Express dealer's have access to the top sub prime indirect finance companies. These lenders do not lend money directly to people with bad credit so they are unable to help with private purchases and auto loan refinancing.
- Auto Loan Refinancing
- Refinance an auto loan fast and easy online for lower car payments and lower interest rate. Service is available in the USA.
- Person to Person Loans from Capital One Auto Finance
- If you have good, fair, or marginal credit and would like to buy a car from a non-dealer private party Capital One is your best alternative.
History of Bad Credit Auto Loans and Usury Laws
Part 2
When Michigan changed the law to allow rates on all model years up to 25% a few things happened. More lenders came to Michigan. More lenders meant more competition; more competition meant lower rates for many people with bad credit. Higher usury rates also allowed people with really bad credit the opportunity to get a car loan with a reputable auto finance company that reported to all three credit reporting agencies instead of that unreputable car lot that did not report to the agencies. After the law changed it was also easier to get people with bad credit approved on a brand new car; before the law changed new car rates were capped at 16.5% and few sub prime lenders would finance brand new cars.
Getting an auto loan from a national finance company that reports to all three bureaus is extremely important if you are trying to improve your credit rating. If you settle for a loan from an unreputable dealer that does not report to the credit reporting agencies, not only will you be limited to an old high mileage car, you will not improve your credit rating by making all of your payments on time. Often these car lots only report when you do not pay on time.
Today, many states, such as Nebraska and Rhode Island still have strict usury laws in place. In these states it is much harder to get people with bad credit a loan from a national finance company. When people in these states are approved, they are often approved at the state rate cap, which, if I recall is 18%. Other states, for example Texas, regulate the rate based on the model year. People in Texas with bad credit can get a loan from a national finance company but they may be limited to an older model year with a higher rate.
Therefore, we believe that states with higher usury rates actually benefit consumers through the competition of lenders and dealers fighting to get their business.
Getting an auto loan from a national finance company that reports to all three bureaus is extremely important if you are trying to improve your credit rating. If you settle for a loan from an unreputable dealer that does not report to the credit reporting agencies, not only will you be limited to an old high mileage car, you will not improve your credit rating by making all of your payments on time. Often these car lots only report when you do not pay on time.
Today, many states, such as Nebraska and Rhode Island still have strict usury laws in place. In these states it is much harder to get people with bad credit a loan from a national finance company. When people in these states are approved, they are often approved at the state rate cap, which, if I recall is 18%. Other states, for example Texas, regulate the rate based on the model year. People in Texas with bad credit can get a loan from a national finance company but they may be limited to an older model year with a higher rate.
Therefore, we believe that states with higher usury rates actually benefit consumers through the competition of lenders and dealers fighting to get their business.
Direct Lending Banks, and Indirect Auto Finance Companies
Part 3
If you have good credit you can go to your local bank or credit union and get pre-approved for an auto loan before you shop at a local dealer. This is not the case if you have bad credit. Most of the leading national auto finance companies for people with bad credit do not lend money directly to consumers. Instead they purchase the finance contract from the car dealer after the loan has closed. In other words the car dealer initially provides the financing, then the car dealer sells the finance contract to a national auto finance company. Anyone who has had a mortgage is familiar with this process.
When the car dealer sells the auto finance contract they can sell it at face value, earn a reserve, or pay a discount. Often, at the point of sale, the dealer does not know which of these will occur. In other words, if you finance a car for $10,000 the dealer could sell the contract for $9,000, $10,000, or $11,000. Many dealers are not willing to take this risk, that is to say the risk of selling a $10,000 contract for $9,000. Because of the risk involved, there are still many dealers that either do not participate in the bad credit lending area, or have only a few "sure thing" lenders in place to finance people with bad credit.
When the car dealer sells the auto finance contract they can sell it at face value, earn a reserve, or pay a discount. Often, at the point of sale, the dealer does not know which of these will occur. In other words, if you finance a car for $10,000 the dealer could sell the contract for $9,000, $10,000, or $11,000. Many dealers are not willing to take this risk, that is to say the risk of selling a $10,000 contract for $9,000. Because of the risk involved, there are still many dealers that either do not participate in the bad credit lending area, or have only a few "sure thing" lenders in place to finance people with bad credit.
Bad Credit Help Books
I searched Amazon so you don't have to. Here is what I found to help people with bad credit get back on the road to a better financial future.
Getting Out of Debt: Repair Bad Credit and Restore Your Finances! (Fastread)
Avg. Customer Rating: 
Amazon Price: (as of 01/04/2010) 
Everything You Wanted To Know About Credit But Were Too Ashamed To Ask: Tools, Tips and Hidden Secrets to Fixing Bad Credit, Building and Maintaining AAA Credit
Avg. Customer Rating: 
Amazon Price: (as of 01/04/2010)
Credit Secrets: How To Erase Bad Credit
Avg. Customer Rating: 
Amazon Price: $16.20 (as of 01/04/2010)
Does Profit Make a Car Dealer Bad?
Part 4
In the car business it is often said that the dealer makes his money when he buys a used car, not when he sell it. For example, a 2004 Ford Taurus with average mileage has a retail value, at the time of this writing, of around $8,500. A high volume car dealer with a good used car buyer may be able to acquire this car for $5,000. A low volume dealer with a bad used car buyer may acquire this same car for $7,500. Under which scenario would you sleep better at night; if you paid $7,000 for the car from the dealer with the good used car buyer, knowing that they made a $2,000 profit, or if you paid $8,000 from the dealer with the bad used car buyer, knowing that they only made a $500 profit? Wait, don't answer just yet!
Special Finance Auto Dealer Services
If your a new or used car dealer, increase sales and customer satisfaction by helping people with bad credit buy a car from your lot.
- Special Finance - Auto Credit Express
- Auto Credit Express, the nations leading special finance dealer services company, has consistently increased dealership profits and customer satisfaction while minimizing the dealers exposure to risk.
- Sub Prime University
- Special Finance Sales Training, Internet Sales Training, and BDC Training
- Sub Prime Lender Directory
- Special Finance Lender Directory - Car Dealer Resources. Find Sub-Prime Lenders for Franchised and Independent Dealers categorized by state.
Deal with a Good Car Dealer
Part 5
As the example above illustrates, the profit the dealer makes has nothing to do with whether they are the right dealer to help you with your bad credit. This is an extremely important point, please read on. I am now going to take the above example one step further, the Good Car Dealer has twenty sub prime lending sources and the Bad Car Dealer only has four.
The best terms the Bad Car Dealer is able to acquire for you is a 25% rate and 48 months to repay the loan, your monthly payments are $331.57 and the total of your principal loan amount and interest is $15,915.36. Since the Bad Car Dealer only has four sub-prime lenders in place they sell your loan for only $9,000 and loose $500.
The best terms the Good Car Dealer is able to acquire for you is a 14% rate and 60 months to repay the loan, your monthly payments are $232.68 and the total of your principal loan amount and interest is $13,960.80. Since the Good Car Dealer has twenty sub-prime lenders in place they sell your loan for only $11,000 and make a total profit of $3,000.
To recap, visit the Bad Dealer and pay $15,915.36 for the 2004 Ford Taurus, the dealer lost $500 on the transaction. Visit the Good Dealer and pay $13,960.80 for the same car, the dealer profits $3,000 from the transaction. In this example, if you visit the Good Dealer you pay $100 less per month and $2,000 less over the term of the loan and the Good Car Dealer makes $3,500 more than the Bad Car Dealer. Is the Good Car Dealer taking advantage of your bad credit, or is the profit their reward for a job well done?
The best terms the Bad Car Dealer is able to acquire for you is a 25% rate and 48 months to repay the loan, your monthly payments are $331.57 and the total of your principal loan amount and interest is $15,915.36. Since the Bad Car Dealer only has four sub-prime lenders in place they sell your loan for only $9,000 and loose $500.
The best terms the Good Car Dealer is able to acquire for you is a 14% rate and 60 months to repay the loan, your monthly payments are $232.68 and the total of your principal loan amount and interest is $13,960.80. Since the Good Car Dealer has twenty sub-prime lenders in place they sell your loan for only $11,000 and make a total profit of $3,000.
To recap, visit the Bad Dealer and pay $15,915.36 for the 2004 Ford Taurus, the dealer lost $500 on the transaction. Visit the Good Dealer and pay $13,960.80 for the same car, the dealer profits $3,000 from the transaction. In this example, if you visit the Good Dealer you pay $100 less per month and $2,000 less over the term of the loan and the Good Car Dealer makes $3,500 more than the Bad Car Dealer. Is the Good Car Dealer taking advantage of your bad credit, or is the profit their reward for a job well done?
New and Used Cars For Sale
These websites are for getting a quote on a new or used car or for selling your car online. If you have bad credit I recommend that you use on the links above first to lock in your financing before you shop at a local dealer.
- New Car - Prices, Quotes
- View New Car Models, Prices & Quotes. Get up-front new car price quotes before you buy a new car. You could save thousands off your next car purchase or car lease.
- Used Cars for Sale Online
- Buying a used car? Review used car prices and used car values online. LotPro.com has thousands of listings including cheap used cars, trucks, and SUV's.
- Sell Your Car on Ebay
- Get the most for your used car when you sell it on Ebay
The Internet and Bad Credit, It's hard to find a company you can trust.
Part 6
When you go online it's hard to tell if you are dealing with a real Brick and Mortar Company or an Internet Marketing Company. Here are a few tips that may help.
Marketing Companies often make false claim, for example, if your go to one of the major search engines, Google for example, and search for "bad credit auto loans" you will be inundated with ads that claim "99% approved", "100% approved", "99% Accepted".
In addition, Internet Marketing Companies hide their true identity. If you click on each of the "Sponsored Links" chances are that you will not find a telephone number or an email address anywhere on the site. In addition, these companies mask their domain registration information by registering their site through services like domainsbyproxy.com whose slogan is "Your identity is nobody's business but ours."
To find who registered the website you are considering Applying with visit a top tier registrar like networksolutions.com, Register.com, or godaddy.com. Each of these sites allows everyone to search the "WHOIS" database (pronounced Who Is). If the site is registered via domainsbyproxy.com, or similar service, you will need a subpoena to find out who owns and operates the website.
Marketing Companies often make false claim, for example, if your go to one of the major search engines, Google for example, and search for "bad credit auto loans" you will be inundated with ads that claim "99% approved", "100% approved", "99% Accepted".
In addition, Internet Marketing Companies hide their true identity. If you click on each of the "Sponsored Links" chances are that you will not find a telephone number or an email address anywhere on the site. In addition, these companies mask their domain registration information by registering their site through services like domainsbyproxy.com whose slogan is "Your identity is nobody's business but ours."
To find who registered the website you are considering Applying with visit a top tier registrar like networksolutions.com, Register.com, or godaddy.com. Each of these sites allows everyone to search the "WHOIS" database (pronounced Who Is). If the site is registered via domainsbyproxy.com, or similar service, you will need a subpoena to find out who owns and operates the website.
Consumer Advice from the Federal Trade Commission
The FTC provides free consumer advice on a wide variety of subjects. I've included links to the webpages that focus on car buying, auto financing, bad credit, and debt.
- FTC Consumer Information - Buying a Car
- The FTC car buying advice webpage.
- FTC Consumer Information - Auto Financing
- The FTC auto financing advice webpage.
- FTC Consumer Information - Credit Cards & Loans
- The FTC credit card & loan advice webpage.
- FTC Consumer Information - Credit Reports
- The FTC credit report advice webpage.
- FTC Consumer Information - Consumers In Debt
- The FTC debt advice webpage.
Summary
Part 7
- If you have bad credit and live in a state with strict usury laws you are at a disadvantage and may not get a good auto loan.
- If you have bad credit make sure you shop at a good auto dealer. A dealer that has the people, process, inventory, and lenders in place to help nearly any credit situation.
- Be wary of Internet Marketing websites; apply on a site, and
with a company you can trust.
Jump to Other Parts of the Article
1 - 2 - 3 - 4 - 5 - 6 - 7
Car loans at FundingWay.com
If you have bad credit you can estimate how much you can borrow before you apply or shop at a local dealer.
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- Tawana Brown Tawana Brown May 30, 2008 @ 4:10 am
- Your site offered me with so much information. Unfortunately, I got the information a day to late. I applied for a bad credit loan with a company called Universal Loans with Jordan Myers. I sent this man my taxes for the last two years, copy of drivers license, proof of child support payments, EIN #, etc. Everything one would need to open fraud accounts despite bad credit. I have to notify the credit bureaus, IRS, and lord knows who else to make sure this company isn't doing anything illegal with my information. They got my documents on May 28 and I really hope that I can block trouble before it happens. I did file a complaint with Canadian officials and on fraud.org. I really wish I had privy to your information before all this happened.
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Reply
- tina tina May 6, 2008 @ 7:06 am
- thanks for the info,in the process of buying a car and found this very informative!
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Reply
- Edgardo Edgardo Apr 29, 2008 @ 7:01 pm
- Exellent it has open my eyes ,
Thank you,
Ed
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Reply
- gearon_garlic gearon_garlic Oct 17, 2007 @ 1:08 am
- Soo interesting and informative lens, thanks! FIVE STAR By me. If
you have some time, please take a review to my American
Express credit card lens.
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Reply
- jean jean Oct 3, 2007 @ 7:19 am
- thanks you have help me out a lot.
by davelal9
Hi, I'm Dave LaLonde, the Senior Vice President at Auto Credit Express, a special finance total solutions firm offering auto dealers entry level and a...
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