Have you been thinking about looking for an auto loan to purchase a new vehicle? If you have bad credit, you have probably found that there are many lenders out there that are willing to finance your new car purchase. Is getting a bad credit auto loan a good idea?

In most cases, getting an auto loan with bad credit will only serve to worsen your financial situation. Lenders know that consumers who apply for bad credit auto loans are typically already experiencing financial difficulties, so they build several elements into their loans to safeguard their investments. These elements may be advantageous for the lender, but they almost always put the borrower in a bad situation.

First, bad credit auto loans typically come with very high interest rates. Some lenders charge as much as 25 percent interest to borrowers with poor credit. Over the life of a loan, this means that you will pay much more to finance your vehicle than a consumer with a good credit score. It also means that your monthly installment payments will be higher, making them more difficult to manage.

Second, lenders that offer bad credit auto loans often require large down payments. If you have a bankruptcy, repossession, or foreclosure on your credit report, the lender may require as much as one-third to one-half of the purchase price of the car. This can significantly reduce your ability to build savings, so you won’t have money available if a financial emergency arises.

Finally, lenders that specialize in bad credit auto loans tend to be less tolerant of late payments than standard lenders. This means that if you get behind on your installment payments, your lender will be much more likely to repossess your vehicle. A repossession can make your life very difficult – not only will it make your credit worse and keep you from being able to purchase another vehicle, it will also make it hard to commute to work.

While it may seem like a good idea to get a bad credit auto loan to finance a new car purchase, doing this can have severe consequences. If at all possible, it is better to keep your old car until your credit improves. If your payment is too high, you might want to consider a bad credit auto refinance. They can often lower your payments, because they extend the term of the loan.