Personal Loans with Bad Credit and Cash for Clunkers

[Jun 22, 2009.]

 

People hoping that the cash for clunkers bill combined with a personal loan for borrowers with bad credit could help them get a new vehicle, may be out of luck. Here's why.

Cash for Gas Guzzlers

The Cash for Clunkers bill is designed to get old, gas guzzlers off the street. Gas guzzlers have a fuel economy of 18 mpg or less. Not only will this be good for the environment, but auto buyers will be able to purchase more fuel-efficient vehicles.

Basically the program will allow people to trade in their old vehicle and receive up to $4,500 toward the purchase of a new car. New cars purchased must get at least 22 mpg and small trucks and SUVs must get at least 18 mpg.

Loans for New Vehicles Only

However, one problem with the program is that the money can only be used to purchase new vehicles, even though some used cars may meet fuel efficiency standards. That rule will probably keep many borrowers who apply for personal loans with bad credit from participating in the program because they'll likely be limited with the type of cars they could purchase.

Debt May Result in Being Denied a Loan

People with a lot of debt also may be denied a loan for a new car. After all, the average price of a new car sold in the U.S. is $28,400, according to the National Automobile Dealers Association. So that means anyone who buys a car for that price and gets money through the Cash for Clunkers program, will still have to come up with around $24,000 in cash or by getting a loan.

So if getting an new auto loan is out of reach, a borrower might be able to qualify for an unsecured personal loan to buy a used car. Auto lenders don't always offer the lowest rates on loans anyway. But keep in mind that any unsecured personal loan a borrower gets will have a higher interest rate if she has bad credit. Check out options for a personal loan here.

Do You Really Need a New Car?

Even if the Cash for Clunkers program would allow a person to buy a new car, do they really need to make such a large purchase. For a car owner who already has a car that runs well and needs no repairs, it may make more sense to hang on to it. Also, if a driver has a vehicle that is fully paid for, delaying a car purchase can allow her to work toward aggressively paying off debt instead of taking on a new loan.

 

About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.