Credit problems can happen to anyone. Even people who have always paid bills on-time and have kept steady income can fall victim to unfortunate circumstances. Many people end up with bad credit at no fault of their own. One illness, one lay-off, or one bad investment can start a snowball effect of you losing everything you own including your car, home, and other assets. Even if you have credit problems because you were irresponsible or made bad decisions, everyone deserves a second chance. You have come to the right place if you’ve had past financial problems and are looking to press the reset button. We’ve helped so many people just like you get back on their feet by helping them re-establish and build creditworthiness with fair auto financing. There are many lenders that target people with bad credit but don’t deliver on their promises. Furthermore, we understand the difficulty of finding fair auto financing terms when you have bad credit. That’s why we have developed a process consisting of a network of car dealers that is designed to get you into your desired vehicle as quickly as possible. There has never been an easier way to build your credit while driving the vehicle you want.
To assist you with making the best decision, we believe it is necessary for you to know the difference between bad credit auto loans and guaranteed auto loans. While both forms of financing are designed for the sub-prime market, they have distinct differences.
Guaranteed Auto Loans
Bad credit, no credit, on approved credit. This is a frustrating and confusing catch 22 that fails to fulfill the needs of people with less than satisfactory credit scores because it doesn’t guarantee that you’ll be approved. Approval isn’t guaranteed in most cases because the dealer is still financing vehicles through a financial institution who must agree to the terms. Most banks shy away from high-risk loans, or will charge enormous interest rates and require large down payments in return. Guaranteed auto financing, also known as in-house financing, is not a traditional auto loan. Under this system, the dealer acts as the lender and you’ll make agreed weekly, bi-weekly, or monthly payments directly to them. Under traditional financing, the bank would pay the dealer upfront for the vehicle and the buyer will repay the bank. Now that you know that, you could understand that guaranteed auto financing is very risky for the dealer. If you default on payments, the dealer will lose money as well as value on the vehicle. This is why many dealers are reluctant to offer this form of financing. For the buyer, this means that you should always be honest and inform the dealer of any hardships so that your agreement could be restructured.
What the Dealer Will Want to See:
- Pay stubs or proof of income
- At least two years of continuous employment
- Professional references
- Down payment of at least 10 percent
Guaranteed auto financing is, however, a relatively easy process if done with the right dealer. Interest rates are competitive with other sub-prime lenders and the application process is usually streamlined.
Advantages of Guaranteed Financing
The cars available through guaranteed loan dealers are generally priced more affordable than anywhere else. You will also enjoy no credit check, an easy purchase process, and competitive interest rates. Dealers also offer more incentives for customers because their financing is in higher demand than others.
Disadvantages of Guaranteed Financing
While the process is much easier and interest rates are lower, there is a possibility that the dealer will not report your payments to credit bureaus. This means that you will get a vehicle but your credit will not improve because of it. Another disadvantage is that you may only be able to select from used cars and your choice of vehicles may not be that wide.
Bad Credit Auto Loans
Bad credit auto loans, also known as second chance car loans, is a sub-prime loan granted by a lender that specializes in high-risk financing. Bad credit auto loans are very similar to traditional loans. These lenders usually have a partnership with dealers that allow them to review customers that could not be approved otherwise. The process works something like this:
- A customer enters the dealership looking to purchase a vehicle.
- The dealer will process a credit application for the customer with preferred lenders.
- If approved, the customer will receive a “good credit” loan.
- If denied, the customer’s application will be passed to a bad credit lender for review.
- If the bad credit lender accepts the customer, the customer will receive a bad credit loan.
With a bad credit loan, you will make agreed monthly payments directly to the lender. Interest rates for these loans are usually higher than in-house financing because the lender must pay the dealer upfront for the vehicle.
Advantages of Bad Credit Auto Loans
A huge plus about bad credit auto loans is that the lender will make monthly reports to all three major credit bureaus regarding your payment history. As long as you make all payments on-time, your credit score will gradually improve over the life of the loan. This will make it extremely easier to secure future loans such as a mortgage. You will also be able to choose from both new and used cars, and major franchised dealerships also offer bad credit financing to customers. This gives you the ability to shop at virtually any dealership of your choice and purchase any vehicle you can afford.
Disadvantages of Bad Credit Auto Loans
While there are a great many dealerships that offer this service, it could be hard to find one that will give you the terms you desire. You must do your homework and shop around to ensure that you are receiving the best deal for your credit situation. Furthermore, interest rates are usually very high and can exceed 20 percent. You must be absolutely sure you can make all regular payments because even one missed or late payment may negatively affect your credit file.
Guaranteed Auto Loans vs Bad Credit Auto Loans by Jordan L Bourland
