Bad credit auto loans are among one of the highest non-paid loans in America. With higher interest rates and lower approval numbers, bad credit auto loans are few and far between. Many companies offer bad credit auto loans, but whether or not you decide this is the best company for you is key.

Companies

One of the lowest interest rates available for bad credit auto loans is 21%. This is much higher than the average 10% that good credit consumers are offered. The reason behind the higher interest rate for those with bad credit, is the finance companies and banks feel that those with bad credit are a higher risk when it comes to paying back the loans. They make this decision by looking at your credit history and whether or not the history shows instances of overextending or overspending. Research companies prior to deciding on one, even if that one is highly recommended by family or friends. That company may have been ideal for their needs, but every credit report and consumer is different.

Look for companies that offer a fixed interest rate, and not a variable one. Variable interest rates mean that one month your payment may only be $400, but the following month if the interest rate is higher, your payment will be higher as well. Companies that offer early payoff restrictions should carefully be considered. Some will fine you with a penalty for early payoff, while others will forgive a portion of the loan after making a few years of on time payments. Companies that offer you the possibility of rechecking your credit history after a year and then lowering payments should also be considered, as your payments could become lower.

Interest Rates

Interest rates are a major part of bad credit auto loans. As of now, there are banks offering 4.9% APR or annual percentage rates for good credit. Bad credit auto loans are seen as high as 29% APR at this time, which means that even though you have bad credit, and it has been shown by your credit history that you have a hard time paying on time, you will pay more than those with good credit. To a consumer, it does not make sense to put more payments on those who cannot afford it, but to banks and financial institutions, bad credit consumers are a possible loss. With higher interest rates, the payment goes up and normally the time period of the loan goes up as well.

Budgeting

When looking for a bad credit auto loan, decide how much of a payment you can really afford. Not the high end and the low end, but what you can actually afford with all of your other bills. IF you budget yourself within $300 of your bills, then you can’t actually afford that $300 payment and would have to go lower. This will help you decide what company to go through as well. Some companies will only finance new cars, in which case a payment would be well outside of your means. Complete a budget of all your bills and decide what payment is comfortably able to fit into your expenses. This will help guide you to a company that offers the options you need.