When seeking auto financing, it can often be tough for borrowers with a bad credit history to find a loan, let alone a decent interest rate. In today's economy, many people have become saddled with poor credit due to bankruptcy, repossession, or other defaults.

If you're planning to purchase a new or used vehicle, or lease a new one, there are a few important things that you should keep in mind before you sign on the dotted line at the dealership.

To begin with, always remember this: Most automobile dealerships typically do not actually finance a car loan or lease, nevertheless, the dealership will most certainly have some sort of impact on how much you will wind up paying for your car financing.

One a side note, one good thing to keep in mind is that car dealerships will always be happy to sell you a vehicle for cash in hand. You can even demand, and often get, some pretty big discounts if you pay for your car when you buy it. This is because auto dealerships are franchises and do not actually work for the automobile manufacturer, and so, the auto dealerships have purchased their inventory using the help of business bank loans that, of course, have to be paid back with interest. Therefore, when an auto dealership has the opportunity to sell a car for cash, they usually jump on it.

On the other hand, if you don't pay with cash in hand and choose to take out a car loan, the dealership will certainly get their money as well. In this case, the financial institution providing the auto loan will reimburse the dealership for the cost of the car. In addition, the car dealership stands to make a nice profit on your car loan by sharing in the interest rates, commissions, and other fees attached to the loan.

Check Your Credit Score

The first thing individuals should do is check their credit score. Even if the credit score is not excellent, or even considered ‘good,’ it doesn’t necessarily mean the individual has bad credit. With a score of about 680 or higher, individuals can find a loan for a used automobile fairly easily. However, individuals with a score that is lower than 680 should begin working to bring their credit score up.

Check into Alternative Loan Options

Aside from traditional bad credit loans, individuals should check into alternative loan options in order to obtain the used auto they need. For instance, asking a friend or family member who has the money to spare may be a good way to obtain the loan that is needed. Even offering to pay interest for the loan is a good incentive that might persuade friends and family to help. Individuals should check into all kinds of alternative loan options so that they know what is available before making any solid decision about obtaining a loan.

Save Money

One of the primary reasons why consumers refinance car loans is to save money. It may be to your advantage to pay off your car loan so that you can refinance the loan to get a lower APR. Sometimes because of lower credit ratings, some individuals must take out a car loan at a higher interest rate. But once you have improved your credit score, chances are you can refinance your car loan, paying back less interest and lowering your monthly car payments at the same time. Better yet, you can pay off your car loan sooner by continuing to pay the same amount of money each month even though the payments have been lowered. This allows you to pay down the principal on the loan faster.

Lower Interest Rate

Refinancing your car loan at an interest rate of just 1 percent less than you are paying can save you money over the duration of the loan. Imagine how much you can save if you can refinance the loan at an interest rate several percentage points lower than what you were offered when you first took out the loan. One possible catch is that you may have to apply for a loan with another lender. The good news is once you have established that you have been making your payments on time for at least six months, another lender is more likely to be willing to take a chance on you.

warning

You should also be aware that an automobile dealership has the ability to change the rate of interest that you would be paying on your auto finance. One of the hidden fee types that some shady automobile dealerships may try to include in your car loan is an automatic increase of the interest rate that the auto lender has offered for your auto finance. For instance, if the auto lender told the auto dealership you were approved for a car loan at 3.5% interest rate, the dealer would keep this information to himself and offer you an interest rate as high as 5.5%, making a major profit just on your loan. Of course, confronted with this fact, the dealer will say that this increase can be considered justifiable because it helps the dealership cover the cost of getting the consumer the financing they need. But, in all honesty it's just additional profit or is used to make up for something they may have given to you somewhere else in the car deal. The most a car dealership is legally allowed to mark up your interest rate is by two and a half percent.