4 Strategies Some Car Dealerships Use to Provide Bad Credit Loans

You've been turned down for vehicle financing at some dealerships, and now you're looking into dealers that offer loans to people with a low credit rating. You feel a little skeptical about this, however, wondering why some used car dealers are willing to provide financing for a person in your situation when most are not. Places that offer bad credit car loans have some strategies for protecting their bottom line, which is why you may be able to get a vehicle there.

Dealer Financing 

A dealer that offers vehicle loans to people with poor credit ratings usually provides financing directly through the dealership rather than with a bank or another traditional financing company. This organization may not even run a credit check, which is required by banks, credit unions, and other financing organizations. Instead, they'll ask for verification of income so they can determine how much you can afford. 

Higher Interest Rates

People with credit problems may feel upset that they have to pay higher interest to get a loan. However, credit ratings essentially help lenders judge how trustworthy a borrower will be based on previous behavior. 

The higher interest rate is intended to protect the lender if someone defaults,. The lender considers this to be more likely when a person has had problems making timely payments in the past. If default does occur, the organization has collected more money than it would have on a lower interest rate. 

Older Vehicles

You're unlikely to get a bad credit loan offer for a newer vehicle. The dealer's website and its ads in local newspapers display a notice that the loans are available on select cars and trucks. Those vehicles are older and have higher mileage -- and relatively low prices.

Once again, this reduces the dealer's risk if the buyer eventually cannot make the loan payments. In that case, the company must go through the inconvenient and costly process of repossessing the vehicle, and may never obtain the balance due. 

Type of Loan Repayment Plan

A person with poor credit may have some trouble with money management that makes monthly payments difficult. They may do better with lower weekly or twice-monthly payments that help them stay on track with a budget. A dealership that offers bad credit car loans typically can make these flexible payment arrangements for their customers. 

Does This Sound Appealing?

Now that you understand how this type of car loan works, you can make an informed decision about whether to pursue the opportunity. For more information, talk to a bad credit car loans professional.