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If you're suffering with bad credit, poor credit, blemished or damaged credit, or have recently declared bankruptcy, you know it can be hard to get creditors to extend credit. It's a myth however that you won't qualify for credit after bankruptcy, or with a bad credit history. You can find secured loan products, and secured credit is the easiest route to rebuilding your credit history and improving your credit score. What is secured debt? Secured debt is any form of credit that is backed by an asset, called "collateral", the security for your loan. One example is a mortgage, which is secured by your home. The mortgage lender puts a lien on your home, and can foreclose if you do not pay the mortgage. The lender therefore is protected if you repeat your credit mistakes of the past and fail to pay. Another example of a secured loan is a secured credit card. A secured credit card requires you to deposit a certain amount with the issuing bank, for example $300, and the issuing bank then gives you a credit card with a $300 credit limit. The bank has security if you don't pay - they will simply keep your $300 deposit. There is no risk, and so they are willing to extend the credit. Auto loans are also secured. You'll find many lenders willing to offer you a bad credit auto loan, because they have the car as collateral: security in case you do not pay. If you fail to pay according to your bad credit auto loan terms, the lender will simply repossess the car. If you've ever filed bankruptcy, you'll see that you are swamped with offers for new credit cards and bad credit auto loans. This is because the lender is fairly secure in getting their car back. However, before accepting one of these offers, you should do some serious comparison of the terms and conditions that each lender offers. Be sure to find out: - What is the interest rate on the loan, and what is the APR (annual percentage rate), which can be higher than the interest rate? The APR includes fees and costs and is the true interest rate you will be paying. - What are the purchase terms of the loan? Are you required to use a certain auto dealership? Can you purchase out of state and save money, for example? How long do you have to use the funds (usually 30-60 days)? - What is the total amount you will repay if you pay through the end of the loan term? This can alert you to other costs if it looks very high. - Are there any prepayment penalties? Often banks charge a prepayment penalty to bad credit auto loan customers. This is a fee you will pay if you try to pay off your loan before the end of the loan term, or within a year or two of taking out the loan. The bank expects to make a certain amount of money on your loan, and the prepayment fees ensure that the bank is getting its money. These should be avoided no matter what; prepayment penalties just hurt customers that are already in financial trouble. (For example, if you want to sell the car, it shouldn't cost you money to pay off your loan!) - Can you afford the monthly payment? If you have bad credit, it's likely that you are already having trouble making your monthly debt payments. Some banks will extend you much more credit than you need. Don't get farther in over your head. You don't have to use the full amount of the loan extended to you by the bank. - Can you get credit for a trade-in? Sell or trade in an existing car before buying a new one. Save money by selling your existing car before buying a new one, and use the proceeds as a down payment. Don' keep more cars than you need, and save on the costs of repair, maintenance, inspections and more. - What are the late fees that you will be charged? These can be buried in fine print. - What other hidden fees are included? Sometimes there can be a large up-front application fee, fees to run your credit, or other fees. Be sure to compare all other fees. - Who is the lender offering you the loan? There are plenty of fly-by-night loan brokers who will send you offers in the mail, hide the fees, and insist they are "helping" you because you have bad credit. The fact is that reliable national lenders also have loan programs for bad credit auto loans that are much easier on your pocketbook. Also, don't go for the loan offered by the dealership. They almost always contain less favorable terms, because the dealership is making some cash on the loan as well as the lender. Comparing loan terms and using the best lender can save you hundreds of dollars a month. Today there is so much competition for auto loans among lenders, you can find good deals even if you have bad credit or have a bankruptcy on your record. Taking out a car loan, if you find the right loan, is an excellent way to rebuild your credit.
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