While a payday loan may seem like a good way to get cash when you need it to buy a car, there are better alternatives out there, even when you need very bad credit financing. One of these alternatives is car loans for people with bad credit from AutoNet Financial.
However, some choose payday loans as an alternative to traditional financing for vehicles with bad credit, but this not a good idea. This is because payday loans are nothing more than personal loans that are secured by information on your paycheck as well as a verification of your employment.
They are meant to appeal to people who need cash quickly and have no other way to get it. In order to qualify for this type of loan, you need a job and some type of income verification (your employer can't be paying you under the table with cash. Typical loan amounts range from $100 to $2500, while the duration of the loan is usually 2 weeks. Interest rates are loosely regulated by the states for these amounts and average 25% per month (unlike a very bad credit car loan, payday loan interest is computed monthly, not yearly).
In addition to interest charges, the loan company usually assesses an origination fee. Many of the storefront locations these companies operate out of also offer check cashing services, pawn loans and car title loans.
Real Bad Credit Car Loans - Why They're Better
Here is a typical payday loan scenario when you need a car loan: Let's say you take out a $2500 payday loan to buy a car instead of choosing car loans for people with very low credit. You give the auto loan company your employment information and a copy of your last pay stub. You pay them the $15 origination fee and sign a document that says you will pay them $625 in interest (25% per month) plus the $2500 in principal in 2 weeks. If you don't have the entire amount in 2 weeks, the loan company will allow you to roll over the loan for another 2 weeks, provided you pay them the interest amount. Most states will allow this type of rollover to occur at least four times.
What is the true cost to borrow this money? Well, let's take a look. If you ended up rolling over the loan four times, for a total of 2 and a half months, it would look like this:
- $15.00 in origination fee plus
- $2500.00 in interest charges
This amounts to a total of $2515.00 in interest and charges to borrow $2500.00. This equates to an annual interest rate of over 100%. One other thing: if you don't pay the principal back, the loan company can garnish your wages - which can be quite embarrassing, to say the least.
Very Poor Credit Auto Financing
A better alternative to payday loans are very bad credit car loans from buy here pay here dealerships. These loans feature:
- At least a 36 month repayment term, repayable in installments;
- No personal check mechanism or other unfair collateral. Your car is the collateral.
- Full consideration of the borrower's ability to repay the loan - the lender reviews your poor credit history for car loans and bases the loan amount on your ability to repay the loan
If you are considering a payday loan, you should also remember that they do little to help you get back on your feet - much less reestablish your credit history and raise your FICO score.
If you are not planning on buying a car with a payday loan and, instead, use it to pay off bills, you should know that a better alternative to payday lending is for you to deal directly with your debt. Many creditors will negotiate partial payments if a payment plan is in place. Working out a payment plan with creditors can allow the consumer to adjust billing to pay off bills over a longer period of time.
Some employers will allow paycheck advances to employees. Because this is a true advance, and not a loan, there is no interest and the advance is much cheaper than a payday loan.
Payday loans are a type of lending that is considered predatory and should be avoided by consumers at all costs. If you have had poor credit in the past and you need to reestablish your car credit and raise your credit score, you should consider car loans for people with low credit.
We have 20 years of practice in special finance and work directly with special finance car dealers and the leading automotive financing lenders throughout all of North America. The knowledge and expertise we have gained through years of bad credit car loan financing for people enables us to give you the best assistance possible for your personal situation.
