Bad Credit Car Loans
Searching for Bad Credit Car Loans online makes the whole process much less stressful than the thought of face-to-face rejection by a loan officer. You can compare car quotes from the comfort of your home, from many lenders, without wasting gas, time, and sweat physically roaming the city. Completing an online car loan application form is quick and easy, and you can expect an answer within 48 hours. A significant advantage of applying for bad credit car loans online is the power YOU have in rejecting unacceptable terms, and exorbitant interest rates from professional “arm-twisters” on the car lots and in the showrooms.
The economic recession has created a powerfully different set of dynamics for both lenders and borrowers. With high unemployment rates and much instability in the job market borrowers are finding it difficult to qualify for loans of any type as credit tightens up. Many lenders were until recently refusing unsecured car finance loans, without near perfect credit scores, from consumers. But this turbulent time has created a conundrum for lenders whose business it is to make loans. With increased numbers of borrowers with falling credit scores, the banks and loan companies have been forced to relax their criteria and begin approving less than stellar credit histories. The whole scenario has paved the way for increased sub prime lending and extending bad credit car loans to more applicants. After the past few years of tight and no credit, it has become easier to find bad credit car loans as lenders adjust their business model in their efforts to attract more customers.
It helps if you know a few steps in the process of securing a bad credit auto loan. The first step is having a clear knowledge of your credit score. Credit scores are determined by the 3 credit bureaus that track every American’s credit history and behavior.
If you have had late-payments, arrears, or defaults on previous loans you are tagged as a bad credit risk. If you have never taken out a loan or only a small one you may be tagged as a no or limited credit borrower, which is almost as bad. Since you would have no credit history (or a very limited one, it could also present an obstacle when applying for an auto loan (especially a high-priced vehicle).
A car loan calculator is an important tool in helping you understand amortization and the exact repayment structure of principal and interest. Of course financing a new or used car with bad credit is not as easy as with a good credit score. You may need to increase the amount of your down payment to get approved as it provides greater equity and security for the lender. A sizable down payment will also reduce the interest rate since the principal amount of the loan as well as your monthly payments are less.
A pre-approved loan gives you negotiating power with the dealer to lower the price of the vehicle. A pre-approved loan will let you (and the dealer) know exactly how much you can afford to spend. It also helps keep you within the budget and focus on getting the best car deal without relying on more expensive dealer financing.
A co-signer is an excellent way of getting approved for a bad credit car loan. If you have zero credit or even a past bankruptcy, a co-signer assures the lender that the loan will be repaid if the primary borrower defaults and the repossessed car’s value is not enough to cover the lender’s loss. The lender, in this case, takes into account a co-signer’s credit history and score in deciding whether or not to grant the loan. A co-signer with a good credit history can guarantee approval with better financing terms.
The factors considered by the lenders for both prime and bad car loans are:
- A stable income and employment history
- Current monthly debt load relative to income
- The budget plan of the borrower
- Credit history and the payment of bills
- FICO score
- Size of the down payment
- Any bankruptcies
The loan officer would make a determination based on the loan amount, price of the car, and the underwriting guidelines. A sub-prime borrower would probably not be equipped to fit a luxury or higher priced car into his budget. However, if a car loan has been pre-arranged, then these points would be moot.
Car finance bad credit lenders will, of course, be interested in seeing the borrowers bank statements and monthly financial transaction to establish the applicant’s economic stability. Prompt and responsible payment of debt will have a great impact on the decision of the lender. To significantly improve the chances of obtaining bad credit car loans, a prospective borrower must be trying to improve his credit rating by paying off any other bills that are past due. If the bills cannot be cleared immediately, borrowers are granted from 6 to 12 months to improve their financial state, and establish regular payments of their bills – gaining credit points.
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