car loans for bad credit

Car loans for bad credit are quite expensive. Your credit score defines your creditworthiness. It indicates how loyal you were to your financial obligations in the past. If you miss payments, your credit score will certainly go down, which calls your repaying capacity into question.

A lender will assume that it is your habit to miss payments or you poorly manage your finances. Since it increases the risk of default, they will charge a higher interest rate.

However, sometimes your credit score may not be that bad, but you will still be at risk of getting it at a higher interest rate. Taking out an auto loan can cost you a lot of money despite good credit history.

What mistakes make Car Loans for Bad Credit more Expensive?

Having said that, car loans are expensive, but you can still get them at the most competitive interest rates. Try to avoid these mistakes to save some of your money.

1. Not negotiating the purchase price

Whether you finance your car with a private lender or a dealer, you negotiate monthly payments, but experts suggest that will take you nowhere. You should instead negotiate the purchase price of the car.

The monthly payment for a car loan will inform a lender how much you can actually afford to pay, and therefore they will likely extend the loan term.

However, if you manage to negotiate the price of the car, you will certainly save a lot of money in interest. This is because the size of the loan ultimately hinges on the market value of the car. For instance, suppose you are looking to buy a car worth €10,990.

You tried harder to set aside 10% of its value, worth €1100, but at the time of signing the deal, you negotiated with a dealer and convinced him to sell it for €9,490. As you have a deposit size worth €1,100, your car loan will be just €8,390 instead of €9,890. You are not just saving €1,500; you will also be saving the interest charged over it over time.

2. Taking out loan term car loans

Even if a dealer is ready to negotiate the car price by a couple of Euros, you may still find it hard to keep up with monthly payments. Below is a table that helps you understand how the total cost of the loan increases when you reduce the monthly payments.


Repayment length

  36 months 48 months 60 months
Car value €25,000. €25,000. €25,000.
Down payment €2,500. €2,500. €2,500.
Trade-in-value Nil Nil Nil
Other fees Nil Nil Nil
APR 10.99% 10.99% 10.99%
Sales Tax (Estimated) 7% (€1,750) 7% (€1,750) 7% (€1,750)
Total loan amount €24,250 €24,250 €24,250
Total interest paid €4,327 €5,829 €7,378
Monthly payments €794 €627 €527
Total paid amount €28,277 €30.079 €31,628

Now you can see how the total cost of the debt increased as the repayment length increased. Most people look for long-term car loans to reduce their monthly payments. This scenario is generally common among those who take out small car loans for bad credit.

Due to high-interest rates, it becomes quite challenging to keep up with payments, so you decide to extend the repayment term, which will put a lot of burden on your pocket. As you can see in the table above, you will be paying an additional €1,802 if you extend the term by 12 months and €3,351 if you extend it by 24 months.

Small monthly payments will keep you tied up with debt for a longer period, and you cannot be so sure about your financial condition for such a long period. For instance, if you come across a financial emergency and you eventually need a lot of money, you will suffer from making payments.

Likewise, if you lose your job, you may fall behind on payments if savings cannot stand firm against your living cost. You will eventually end up applying for bad credit loans on the instant decision in Ireland. This may make it harder for you to keep up with payments, and sadly you may fall into debt.

3. Setting your hopes on dealership financing

Dealership financing seems to be a convenient way for buyers as it speeds up the process of getting a car, but the convenience may bring some risks. Dealership financing involves hire purchase and personal contract purchase. The former works like an auto loan, but interest rates can be quite high, and when you have a poor credit history, you should be more careful.

The latter involves a system of paying rent every month. However, you will be charged an additional cost for breaking the clauses given in the contract about mileage and wear and tear.

At the end of the contract, you can get the car in your name by handing in the salvage value or just return it. This can be dramatically very expensive financing. You should look for a personal auto loan from an online lender.

They could be more affordable than dealership financing. Even if you have a bad credit history, interest rates will likely be more competitive than what you would get from a dealer. Further, you can get a car loan just by paying 10% of the down payment.

However, dealers may require 15% in case of both hire purchases and personal contract purchases, depending on their policy. Do not forget that other fees are also charged that add up to the cost of the loan. Dealers may charge higher fees than private lenders.

4. Not shopping around

Whether you have decided to finance your car from a lender or a dealer, shop around. Because interest rates and associated fees may vary by lenders, a little bit of research will help you get the best deal. For instance, the average interest rate for a car loan is 10.99%, while some may charge between 10.969% and 15.99%.

Of course, it makes sense to choose the one that charges lower interest rates, and it could be possible only when you shop around. Various websites compare interest rates offered by lenders. Ask them about other fees, so you know what it will cost you exactly.

Also Visit: Is Car Loan Refinancing A Practical Solution?

Bottom Line

If you are looking to take out a car loans for bad credit, you need to be careful about the deal you get, whether you are financing it from a lender or a dealer.

Make sure you do not make the mistakes mentioned above. Do research to get the most affordable deal. Do not sign for a long-term car loan and try to negotiate the purchase price.

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