People buy cars every day. Cars are necessary to help many folks get to work, to the store or to other locations that they visit on a daily basis. However, buying a car may have a negative effect on a person’s credit if mistakes are made or if the person is in an accident. Few people consider the risks of owning a car on their credit. Even if they have a bad credit car loan, they may think that they can’t hurt their credit even further. Yet, responsible car owners need to know that good or bad credit can get worse if they are not careful.
This article, of course, is not intended to scare you into not taking out a loan. However, because so few people understand the risks of owning a car, it is important to inform you of these risks, especially if you have a good or bad credit car loan.
Risk 1: The Loss of an Unpaid Car
There are situations every day where a person takes out a car loan in order to buy a car, but then loses the car. Sometimes, the person’s car gets stolen. Other times, the car is wrecked and totaled by the insurance company. Many insurance companies will pay for the value of the lost vehicle, but will not pay for the entire loan amount.
For example, if you take out a loan for $20,000, but the value of the car has depreciated to $15,000 since driving it off the lot, then you still owe $20,000 on the car. If you wreck the car, the insurance company may only pay you $15,000, meaning that you still need to pay off an additional $5,000 that you owe to your lender. If you cannot pay this amount off on your own, then you may run the risk of getting bad credit, which will negatively impact your credit score and require you to re-establish your credit.
Risk 2: Inability to Pay Off the Loan
Most people have a plan to pay off a car loan when they take the loan out. Chances are good that they have a stable job that enables them to feel confident in their budget and in the addition of an extra fee each month. However, people run into trouble often when the unexpected happens.
For example, many people are unable to pay off their car loans if they become ill and cannot work or if they go through another personal crisis that impacts their finances, such as a divorce or death in the family. Facing unforeseen financial problems can hurt someone’s credit if they are unable to continue to pay off the loan. Bad credit car loan are often a result of people that have faced these unforeseen circumstances in the past.
For more information about the risks associated with a car loan, or to find out how you can get a no credit car loan or bad credit car loan, contact one of our lending agents today. We’re happy to pair you with a car that will help you re-establish your credit or suit your financial needs – no matter what unforeseen circumstances come your way.