More and more people need vehicles, and car loans and bad credit car financing are some of the most searched topics today. Here is a short review on what both loans offer to consumers.
About car loans
Car loans or auto loans are financing means given to qualified loan applicants. Applying for the loan entails submitting identification papers, proof of income, credit rating and application form.
Companies typically grant loans to people with acceptable credit rating, a reliable financial history and a permanent job. Lending firms set these criteria to ensure that they will get all due payments on time. Payments made to these firms are in turn necessary so they can pay their employees, taxes and utilities.
In this setup, the applicant has control over vehicle choice. The person may choose any model from an SUV to a compact or everything else in between. The individual’s good credit rating and financial background allow this since loan company trusts that he or she can meet the required payments.
Bad credit car financing
Bad credit car financing is another vehicle loan type primarily targeting people with bad credit. This includes people who have gone through bankruptcy and those still dealing with bad debts. People who have a long history of bad debts may also apply for the loan.
The loan company, in this setup, might scrutinize their applicants’ vehicle choice. Some firms are cautious about this part since they already know the applicant’s payment history. Choices such as SUVs and other expensive car models are not encouraged. Many end up disapproving applications due in part to vehicle choice.
Practicality and other issues
Many people ask which option is more practical since both give financing options anyway. The answer relies on a person’s specific situation. Auto loan is the ideal option if you have a good credit history and your score is at or above median. A bad credit loan is necessary if you have a less desirable financial background and your credit score suffered from it.
Interest rate is another point to consider. Bad credit financing applicants might incur higher interest rates compared to their counterparts. This happens because prospective lenders view them as financial risks. Offering a car worth $5,000, for example, to a person with bad credit score and long history of due debts entails a big risk since the lending firm might not get their due payment at the end.
Down payment is also another essential matter. Individuals with acceptable ratings can pay lower amounts compared to people with lower scores. Again, this has to do with the risk the lending firm takes on.
Loan availability also comes into play. Many financial companies make their packages highly available only to those with reliable or good scores. People with below median ratings, on the other hand, need to be more alert and diligent in their search for lending firms.
Make sure you are prepared whether you will choose a car loan or a bad credit auto financing. Study vehicle affordability, performance efficiency and fuel consumption. Check your monthly expenses for food, utilities, and emergency to know exactly how much you can spend for a new car. Examine loan company backgrounds, too, before handing out applications to protect your financial privacy.
Betty Gargis is a car enthusiast who helps friends and family apply for car loans. The author once went through bad credit car financing