Used car loans are usually for smaller principal amounts than new car loans, so, if you have bad credit, you may be better off financing a used car purchase. However, financing a used car has several pitfalls -- you wont want to continue making payments on a car that doesnt work anymore. Read this article to find out what to watch out for when applying for a bad credit used car loan:

Car Costs More Than its Worth

If the car youre buying is worth less than the amount of money youre trying to borrow, youre a lot less likely to get approved for your loan. For one, it represents a much higher risk to your lender; if you cant repay the loan, they may not get back all of the money they lent you. Secondly, youll be upside-down in your loan. This can damage your credit even more than missing payments.

Car Has No Warranty

If the car youre buying is used, then its likely that it will have some mechanical wear. If you cant afford to repair these things when they go out, youll want to get a used car with a warranty. If the dealership youre purchasing it from does not offer warranties, take the car to a mechanic before buying it. If the dealership is not a predatory lender, they should have no problem with you taking the car to an outside mechanic in order for an opinion on the cars condition. If they refuse to allow you to do so, theyre probably not a reputable company.

Buy-Here-Pay-Here Car Lots

Buy-here-pay-here car lots generally charge high interest rates, have poor cars, and dont report to the credit bureaus. For a person trying to repair their credit, this is the worst deal you could agree to. Youre much better off trying to secure a loan through a bank. While banks generally charge higher interest rates on used cars than on new cars, their rates are still lower than those of buy-here-pay-here car lot loans. Youre best bet is to avoid these car lots entirely.