Getting a car loan doesn't have to be a nightmare, even with bad credit.

Understanding Auto Loans and Monthly Payments

Posted July 31, 2013 by

When determining the amount of your monthly auto loan payment, several key facts are taken into consideration during the calculation process. Bad credit can, in fact, affect the amount of your auto loan’s monthly payment. Some of the key facts taken into consideration are the interest rate that you’re eligible for, down payment, trade-in value, and the length of your auto loan. Given below is an explanation for several of these aspects, as well as how bad credit may affect various decisions.

Monthly Payment Calculation

The larger the down payment put on a vehicle, the lower the monthly payment has the potential to be. Most lenders prefer a minimum of $3,000 down on a vehicle being purchased by persons with bad credit. If you’re trading in a vehicle, money will be taken off the overall price of the vehicle depending upon the value of the trade-in.

If you trade-in a vehicle and produce a decent down payment, then this will be a huge benefit to you when it comes to your monthly payment, because you’re bringing down the price of the vehicle.  The length of your loan will also determine your monthly payments.  If you take out a shorter loan, your payments will be higher.  If you take out a longer loan, then your payments will be lower.

Does Having Bad Credit Affect Monthly Payment?

Yes, and this is where your interest rate comes into play.  If you have bad credit, then you’ll have a higher interest rate, which will result in higher monthly payments. These interest rates are higher, particularly with lenders that specialize in bad credit auto loans. However, even with these specialized lenders, they are taking a risk lending to you, because your history shows that you are not faithful with making payments, therefor they compensate the risk by offering a higher interest rate.

However, with these high interest rates, your ability to pay will be determined also by your income, etc. Many things will be taken into consideration during the lending process.  Your lender doesn’t want to put themselves at risk or you by giving you a loan that you will not be able to manage and make payments on.

How Can a Bad Credit Auto Loan Help My Credit?

There is a silver lining: consumers are able to use bad credit auto loans to their advantage by not only getting on the road in a new or used vehicle, but by making  monthly auto loan payments on time, they will be improving their credit score. Always pay your payments on time and you can improve your credit, then in the future if you want to trade in your automobile, you might find yourself a better deal with a lower interest rate.

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