If you have bad credit and need an auto loan you may be stuck trying to decide what you would be better to try for a new car or a used car. Many people would like to have a brand new car if they didn’t need to consider monthly payment, depreciation, and total cost. If you have bad credit there are a million variables at play here, I should address a few of those variables.

You need to consider your end result, if you can’t afford a big payment you can’t afford an expensive car. New cars cost more than used cars and with a higher interest rate than someone with excellent credit you will have a higher payment. Keep in mind that on a regular term of five years, your payments could be 25 to 35 dollars per thousand that you finance. On a ten thousand dollar loan, that means you’ll pay $250 to $350 per month.

In a bad credit situation, the dealership will most likely need to absorb a fee from the bank. Fees vary from $95 to over $5,000 and they need to be absorbed into the deal without passing a fee on to the buyer; this is usually more difficult to get over the worse the buyers credit is and can become very difficult to do. If a bank will approve your loan they may issue whats called a conditional approval. Once a dealer can match the banks terms they will allow the loan. A bank will usually allow a low percentage of the value of the vehicle to be financed by the buyer. The dealer must also absorb the banks fee without marking up the car. A new car has a given rate of mark up between invoice price and the manufacturers suggested retail price (M.S.R.P.) and hence can absorb a given amount of fee from the lender. Some new cars have more mark up than others do but, generally speaking it is harder to absorb a lender fee into a deal on a new car because they don’t have enough mark up.

Hopefully, if you have bad credit and are buying a car, you won’t always have bad credit and will use this car loan to get yourself re-established. Since you are using this loan to get back on track, you may want to have a loan that you can get out of once you have improved your credit. Once you have improved your credit, you will be have more options of what you can buy and should have a lower interest rate. If you buy a new car it will take longer to get out of your negative equity because the highest depreciation takes place in the first two years.

Don’t get in over your head on a temporary situation. If you plan on rebuilding your credit with your next auto loan, don’t go out and make a bad decision, don’t go out and get yourself buried in a car that you won’t be able to get out of when you are re-established.

Apply For An Auto Loan Here