A bad credit auto loan is a car loan made to a consumers with a low credit score. The cutoff score varies from lender to lender; however, it's usually applicable to scores that are 620 or below. Consumers with such scores are considered subprime borrowers.
Function
A bad credit auto loan gives consumers the opportunity to buy a car when they don't qualify for traditional financing. Not all dealers offer such loans, however.
Features
A bad credit auto loan will have a higher interest rate than a traditional loan. It may also require a large down payment.
Effects
Since bad credit auto loans have higher interest rates,the loan will cost the consumer more money overall. It may also lead to bigger monthly payments.
Benefits
If a consumer makes on-time payments with a bad credit auto loan, the positive payment history can actually improve his credit score over time.
Warning
Bad credit auto loans may include hidden charges and a pre-payment penalty, which means the consumer will pay a fee if she pays the loan off early or refinances with another bank.
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