Just because you have bad credit doesn't mean that you have to settle for the worse possible loan terms on the market. If you have bad credit, there is still a lot you can do to secure a loan that is favorable and works to your advantage.
1. Save Up for a Down Payment
One way to give yourself leverage to get better loan terms when you have a low credit score is by saving up for a larger down payment. Determine the price point that you want to purchase at and save up for a 20% down payment. For example, if you want to purchase a car that costs $10,000, you would need to save $2,000 dollars. Saving up and being able to put down a large down payment can help you secure more favorable loan terms. Having a large down payment will also help reduce the amount of money that you need to borrow, which will help reduce the amount that you pay overall for your vehicle by reducing the accumulated interest in the loan.
2. Ask for a Specific Length of Loan
Car loans are getting longer and longer these days, and that is not necessarily a good thing. You don't want to be paying off a used car for six years. You want to be able to pay off the vehicle and if necessary, sell it and still get some value out of the vehicle. You don't have to settle for incredibly long loan terms. Longer loan terms increase the chance of you being upside down in your vehicle and they increase the amount of interest and money that you end up paying for your vehicle. Figure out how much you want to borrow and what type of monthly payments you can afford, and use that to negotiate a loan length that will not leave you with a car payment for six or seven years while still allowing you to easily afford to make a car payment every month.
3. Make Sure There Is No Early Payment Penalty
When you have a bad credit score, you are almost sure to be saddled with a high-interest rate, which ends up increasing the amount of money that you pay on your vehicle over the life of your loan versus someone with the same loan and a lower interest rate. One way to get around having to pay so much in interest is by paying your loan off early. However, that only works if your loan contract does not have an early penalty fee.
An early penalty fee basically discourages you from paying off your loan early by saddling you with an expensive fee if you try to pay the loan off early. Make sure that your loan doesn't have an early payment penalty. This will allow you to save some money by paying your auto loan off early. If you have a poor credit score, be sure to save up for a big down payment and use that big down payment to negotiate for a shorter length of your car loan and to make sure that there are no early payment penalties attached to your car loan.
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