Car Loans For People With Bad Credit Have Other Considerations
Borrowers have other factors to weigh beyond just the financial cost of a high-interest rate auto loan. For example, opening any line of credit usually has a temporary negative impact on a person's credit score. That means borrowers should expect a dip in their score before they can build it back up with regular payments.
Ridley says that it's also important to consider the effect a new loan will have on a borrower's credit utilization ratio. This measures how much of a person's available credit they're currently using. While some types of credit increase a person's available credit and therefore lower the ratio, that's typically not the case with auto loans, Ridley says.
"If you take on a vehicle loan, you are immediately using 100% of the available credit on that credit line," he says. "So, it's important to get an auto loan in combination with other revolving credit, such as credit cards."
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