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 won't want to continue making payments on a car that doesn't 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 it's Worth

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

Car Has No Warranty

If the car you're buying is used, then it's likely that it will have some mechanical wear. If you can't afford to repair these things when they go out, you'll want to get a used car with a warranty. If the dealership you're 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 car's condition. If they refuse to allow you to do so, they're 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 don't report to the credit bureaus. For a person trying to repair their credit, this is the worst deal you could agree to. You're 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. You're best bet is to avoid these car lots entirely.