Auto Loans for People with Bad Credit.

The following is an excerpt from our blog (washingtonautocredit.wordpress.com).

Do you ever wonder why most people that have monthly auto loan payments on their car loan owe more money on their car loan than a dealership or insurance company would give them for the vehicle?

Here are the reasons:

1. Low Down Payment on the car purchase.

2. Low Monthly Payment on the auto loan.

Sure, everyone wants a really low payment with no money down when they buy a car, but does everyone understand the long-term consequences? With several years experience in the auto industry, Washington Auto Credit can say very confidently that most people do not understand the kind of hole they are creating for themselves in the long run.

In the car business, we say that people who owe too much money on their trade-in vehicle are “upside down” or “buried”. The difference between what you owe on the car loan and what the car is worth to a dealer or insurance company is called “negative equity”.

Let’s start at the root of the problem. In today’s society, people want to have the nicest car they can afford, the biggest house they can afford, and the best toys they can afford. There is nothing wrong with having nice things. The problem arises when banks, credit unions, and finance companies make it too easy to buy the more expensive toys with no money down, and a low payment on an extended term. With the combination of an extended term car loan (over 48 months on a car loan) and a no or low money down loan, people are not paying down the balance fast enough to keep up with the depreciation of their vehicle. A negative equity situation for at least half of the auto loan term becomes inevitable.

A few years ago, Mitsubishi motors ran a special on their new cars. They were offering no money down, now payments for a year, and zero percent interest. In fact, some dealers giving away free gas for the year also. Assuming that everyone that bought a new Mitsubishi was going to keep it for 6+ years, it would be a great deal over time. However, in this country, most people only keep their car for 2-3 years. What do you think happened when people that bought the new Mitsubishi vehicles with these auto loan offers tried to trade them in after a couple of years? They were very upside down in the car loan because they owed almost as much on the car loan as they did 2-3 years ago, and the car was worth much less. Many of the loans went to repossession because people either could not trade out of them, or they could not sell the cars for what they owed; the losses on those loans were high. I have not seen the same incentives offered by any other manufacturer since then.

The only way to be able to trade-in a car that you owe too much money on, without putting a bunch of money down, is to roll the negative equity balance over to the new auto loan, which gives you even more negative equity than you would have had. It is a vicious cycle that does not end until either you cannot trade out of the negative equity anymore due to lending guidelines, or you actually stick with a vehicle until near the end of an auto loan to get close to breaking even.

At WashingtonAutoCredit.com we try to help our customers see all of their options so that our customers can make an informed decision. Sometimes, our clients listen to us on their auto loan decisions and sometimes they decide not to. In the end, we try to help everyone. If you are in need of an auto loan for people for bad credit, please consider applying on our web site or calling us toll-free at 888-300-3502.

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Washington Bad Credit Car Loans.