One of the hardest deals to negotiate is car loans for people with bad credit. A brand new car can cost an average anywhere from $15,000 to $25,000. The only way to make a purchase that large is through financing. Most people can afford the monthly payments of around $300-$400 for a car loan; after all, their jobs usually depend on transportation. But if your credit is poor, there aren’t many options, except car loans for bad credit. The problem is that car loans with bad credit are crazy expensive.

It can be embarrassing to try over and over again to get reasonable car loans with bad credit. Dealers typically want to charge eighteen to twenty-five percent interest on the loan for bad credit borrowers and then give financing for half the time period of what a good credit borrow gets. Not only is the interest rate higher and the time to pay it off lower, the down payment is higher and there are sometimes fees for payment insurance (meaning if you’re unable to make the payment, the insurance takes over).

Typical Car Loans Bad Credit Amortization

Let’s take an example of a typical car loan with for people with bad credit. Assuming your credit score at the minimum 550 (any lower and you’ll need a co-signer). and the car you wish to buy is $15,000, let’s go over the costs of this loan.

The typical period for a bad credit car loan is 2-4 years. We’ll take the median of those at 3 years in our example. The interest rate can run anywhere from the minimum (approximately 5%, but an impossible amount with 550 credit rating) and the most common interest ceiling of 24%. Again we’ll take the median here at 16% interest for the loan. Dealers request anywhere from 20%-50% down payment on a car loan for bad credit borrowers, but generally it’s 20%, so we’ll use that figure. When you purchase a $15,000 car with a $3,000 down payment, a 3 year amortization schedule at 16% can expect payments of around $422 a month and by the time you’re done paying off the car, you will have paid nearly $3200 in interest alone.

That same car bought with good credit at an interest rate of 6%, with no down payment (a full $15,000 loan), would be monthly $352.28 and interest totaling $1409.22. That’s half the interest of a bad credit car loan!

Not only are people with bad credit car loans paying nearly double the interest, they’re doing it in less time and with bigger down payments. As you can see bad credit borrowers are penalized in many ways, not just with the interest rate. If you’re interested in buying a car, but not interested in paying double the interest, repairing your credit and then buying the car one year later is the best option.

Repairing credit is a task many people don’t consider when being turned down, or doubly charged on loans. In a 12 month period a consumer can completely rebuild their credit using a secured loan, credit card and by visiting a credit counselor who is reliable. During the 12 months of rebuilding credit, it’s a great time to deposit money for the down payment for the car as well, further reducing the cost of the interest.

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