Special finance auto loans are a common type of loan available to consumers who have bad credit and would like to purchase a car. You don’t need to put up the total amount required to buy the car; instead, you reach an agreement with a bank or car finance dealer, allowing you to purchase either a used or new car. The financial institution, the bank in this case, is given security, which in most cases is a lien on the title of the vehicle, until the loan is paid off in full. If at any time you default on paying payments for this loan after purchasing a car, the bank or other lending institution will have the right to repossess the car from you and resell it to recover the cost of financing it.
When preparing to apply for this kind of loan, you should consider a number of things:
- You can repay the loan with a monthly deduction from your salary.
- You are required to keep the car for a long period — at least 4 years.
A special finance car loan can be more expensive than a regular loan due to the risk associated with bad credit. After all, these are auto loans for people with bad credit. Often, they require a substantial down payment paid to the dealer. The argument, however, is in the convenience. Some of these loans are approved within 24 hours.
Finding lenders offering these loans isn’t difficult. However, you have to do due diligence in the form of extensive research in finding one that works well for you. The costs of these loans vary, so you should compare several quotes before zeroing in on your choice. The cost on the loan (interest rate) is determined by the financial market, the term and your previous credit score.
Often, these are for used vehicles, not new ones. It’s advisable to buy a lower cost but comfortable car with these loans, and one that you can easily repay. This will build your credit history, and after you’ve proven to your lenders that you are able to repay your debts, you can upgrade in due time.
Remember, having a bad credit history doesn’t lower your chances of getting these loans; it only gives you an opportunity to improve it.