Auto Based Loans for People With Poor Credit

The poor economy, bad real estate conditions, and lackluster job market have forced many families into a precarious financial position. They can’t get a loan based on the value of their house because the house isn’t worth what it’s mortgaged for. Getting a better paying job isn’t an option at the moment. So if money is needed are there loan options for those with poor credit?

An asset based loan is one solution. If you have an auto that is free and clear from liens and has some value it may be possible to get a loan using the car as an asset. The problem is that since you have poor credit that loan isn’t going to be from a traditional lending source.

There are companies that will make the loan. The interest rate will be as high as legally allowed in your state. The amount will be for far less than the book value, even low book value of the car. The title to the car will be signed by you and given to the lending company. If you don’t pay the loan back they automatically take possession of the car.

What’s worse is that if you to continue to drive the car they can and will charge you a lease payment. That payment can be astronomical. There are no state statutes on what the lease payment can be. It’s not unheard of for the company to charge $500 a week. So if you get a $3000 loan (on a car with a value of $10,000) at 24% interest for eight weeks and drive the car for those eight weeks, you’ll end up paying a total of $7,120 dollars.

If you don’t pay the loan back you’ll lose the $7,000 in value of the car over and above the loan. Don’t think that you can refuse to pay the loan back and just keep driving the car. You don’t own it anymore and would be committing grand theft auto, a felony.

It makes more sense to sell your car outright and then buy a much cheaper car until your financial situation improves.