Auto Loans With Bad Credit

When you go to close on your auto loan one of the optional products that your loan officer may offer to you is GAP insurance. Sometimes called “Guaranteed Asset Protection” or “Debt Cancellation Agreement” GAP insurance can be added to your loan to help offset any future liability in the event of a total loss of your vehicle. Here is a general outline of how it works.
 
1) WHAT IT IS- Simply put, in the event of a total loss, GAP insurance pays off any deficiency, if there is one between what you’re insurance companies settlement amount is and the balance you still owe on your loan.

2) WHAT IT DOES- If your vehicle is totaled out by your insurance company they will use a variety of resources to determine a current market value of your vehicle at the time of the loss. Many times this settlement amount will be less than your outstanding loan balance. How much you owe at the time of the loss is irrelevant to your insurance company. They are only going to pay what their interpretation of the current market value is. If the proceeds from your insurance company are less than what you owe then your GAP insurance policy would kick in and satisfy the difference. Paying off the rest of your outstanding loan.

3) DO I NEED IT- Many factors determine whether or not you will have a deficiency owed in the event of a total loss. Your interest rate on the loan has a lot to do with how quickly your principal balance is paid down. If your rate is high, less of your monthly payment is going towards paying down the principal on your loan. How much money you put down is also a factor. If you put a substantial down payment towards your loan then obviously your loan amount will be much less therefore reducing your risk of having a deficiency balance due in the event of a total loss. How long of a term you finance the vehicle for plays a role also. If you finance a vehicle for three years you will have the loan paid sooner than if you finance the vehicle for five years. Consider all of these factors before you make a decision. If you find yourself financing the vehicle for a longer term and putting minimal down then it is recommended that you purchase GAP insurance.

 
4) WHAT DOES IT COST- Although every insurance company is different, the price of GAP coverage varies from $250.00 all the way up to $700.00. Sometimes the amount you are financing can affect the price. This will usually affect your payment $10.00 to $20.00 per month if you add it to your loan depending on the particular premium amount. Many automotive insurance companies also offer this coverage as a rider on your existing auto insurance policy at cheaper premiums so it is recommended that you check with your insurance agent.
 
It is important to note that GAP insurance is completely optional and not a requirement to get approved for a loan. It is simply a way for you to protect yourself from the depreciation that happens with automobiles. If the worst does happen this coverage will at least get you out of your existing loan rather than leave you with a balance owed and still no vehicle.
 

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Edmunds.com is urging consumers to purchase GAP as part of its Auto Finance tips and advise column. The online resource for automotive information issued its recommendation on Jan. 15.
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Technorati Tags: auto loans, auto loans with bad credit, bad credit car loans, gap insurance

If you are applying for auto loans with bad credit, having a substantial down payment will definitely help you get approved. Applying your tax refund to your purchase can really swing the pendulum your direction.

As more and more people are finding themselves with lower credit scores, their traditional lending sources they are used to using will not be able to help them. Once your credit score gets below a certain point most banks and credit unions will not approve you even if you have paid loans with them on time in the past. Most bank guidelines and credit union charters prohibit approving loans below a certain credit score usually around a 620 FICO. This helps them to maintain a profitable portfolio of loans. These lenders provide what are called prime loan rates. These rates are usually very competitive and low. Consequently this does not leave very much room to offset delinquencies.To protect themselves they will not approve any applicant below their minimum credit score guidelines.

You can however turn to sub prime lenders for auto loans with bad credit. Although these lenders rates will be higher they will look at your whole financial picture not just your credit score. One way to really increase your odds for approval is to have a decent size down payment. When you put down a substantial down payment you accomplish two things for the lender.

1) You put them in an equity position on this loan. Sub prime lenders pay very close attention to “loan to value” guidelines. Here is a rough example:If the vehicle you are looking at purchasing is $10000.00 and the loan value is $9000.00 the lender is more than likely only going to approve up to the loan value. If you are putting $4000.00 down then they only need to approve $6000.00, this is way back of loan value. You have almost completely eliminated any risk for them. Loan value represents roughly what the collateral, in this case the vehicle is worth if sold at auction. If for some reason you stopped making payments and they had to come repossess the vehicle the amount they would get at auction would more than pay off the outstanding balance owed by you. The end result is no financial loss to them.

2) You are demonstrating a commitment to this loan. If you part with a large sum of money for a down payment the bank knows that you are making a commitment to this loan. If you default and they repossess the vehicle you will lose out on all the down payment money you put down. Most people will not want to walk away from that kind of money so they continue to keep their loan current. Again helping the lender feel secure.

As you can see putting a nice chunk down can really make the lender feel secure, therefore making it easier for them to say yes. If your credit is bad and you need to get approved for an auto loan,down payment is the key to getting you there. Using your tax refund can be a good way to accomplish this. Many dealers are set up to apply for your refund using various tax services. They can file for the rapid refund while you wait. This allows them to get the refund directly sent to them and you can drive home the vehicle right away rather than waiting for your refund in the mail.

Technorati Tags: auto loans, auto loans with bad credit, bad credit car loans, car loans with bad credit, sub prime

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