Is my credit score all that matters when applying for auto loans with bad credit?- No, subprime lenders look at your overall financial picture not just your credit score. Your job time and residence time, debt to income ratios, and whether or not your financial problems are in the past are all things that a lender will look at. How you paid your last auto loan and how well you have been paying your bills recently are also good indicators for a bank.
Can I apply online for auto loans with bad credit?- Yes, There are literally hundreds of subprime lenders out there who spend alot of money advertising on the search engines and web sites to ultimately get to you the consumer looking for a bad credit auto loan. Look for phrases like “guaranteed credit approval” or “bad credit car loans” . These are lenders that specialize in auto loans with bad credit. Simply fill out their online application accurately and you will get a response shortly.
If I am self employed can I get approved?- Yes, many subprime lenders will allow you to be self employed. You will however have to prove your income. Most subprime lenders have policies in place as to what they will accept as proof of income. Some will accept your last 2 years of tax returns. Some will accept 3 months of personal bank statements that they can use to average your monthly deposits from. Some, but not many will accept verbal verification from an employer. It is a good idea to ask the lender you are dealing with upfront what they will accept as proof of income.
Do I need a down payment?- Most of the time yes, when you put money down you accomplish 2 things for the bank. Number one you put them in an equity position on the loan. This minimizes their risk because when you make a substantial down payment your loan is usually less than what the collateral (in this case the car) is worth. Number two you are demonstrating to the bank that your financial problems are in the past by being disciplined enough to save up a down payment. You are also showing a commitment to this loan by making part of the payment upfront.
Will a cosigner help me to get approved?- Yes, most subprime lenders will allow a cosigner on an application. When you add a cosigner, many times it will help you to fit within the lenders guidelines better than if you applied on your own. For instance if you add a cosigner that lives at the same address as you, most of the time the lender will combine both of your monthly incomes. This alone might get you approved if you were turned down previously for debt to income ratio reasons. Remember to bring someone to the table that is at least as stable as or more than you are. This will increase your chances for approval.
What type of documentation will I need to provide?- Usually you will need to provide a recent pay stub to verify your income, some type of utility bill to prove your place of residence, a phone bill in your name to verify you have a phone, and some lenders will require 5 to 10 personal references.
If I am on Social Security Disability, can I get approved?- Yes, social security income is guaranteed income every month. Most lenders that deal in auto loans with bad credit will accept social security disability income. Be prepared to provide a copy of your award letter from the social security administration. This document outlines what your monthly benefits are for the year. If you need a copy of your award letter you can request one online at http://www.ssa.gov/
Can I get approved without a valid drivers license?- No, almost all lenders with require full coverage insurance on the vehicle you are purchasing. This ensures them that in the event of an accident or total loss of the collateral (in this case the vehicle) will be replaced or repaired. Although some states allow you to obtain insurance without a valid drivers license, most do not. Therefore the majority of lenders will require you to have a valid drivers license.
If I have been turned down in the past is there any benefit to applying again?- Yes, with the current economic conditions the way they are more and more people are finding themselves falling behind on certain bills. This can significantly drop your credit score. You may have the ability to afford a new car payment but your lower score will not allow you to use the traditional sources you have gotten loans from in the past. You need to apply to lenders that specialize in auto loans with bad credit. The banks deal with lower credit scores and are just looking for loans to approve. Watch for phrases like “bad credit no credit”, “guaranteed credit approval”, or “re establish your credit with us”. These are indicators that the lender deals in low credit scores. Once approved, over time your credit score will start to rise if you are making timely payments. You can then go back to your traditional lending sources for future loans.
Does child support income work when applying for auto loans with bad credit?- Yes, if your child support is court ordered and directly deposited into your bank account by the state you live in; most subprime lenders will accept child support as income. Be prepared to show a copy of the court order and 3 consecutive bank statements highlighting the direct deposit of the funds.
Does having a cosigner on my loan still help my credit score?- Yes, the credit reporting agencies record the payment history on both parties credit reports equally. Provided you are making payments on time both you and your cosigner’s credit score will benefit from this loan. Conversely if you are not making payments on time it will affect both of your credit scores negatively.
Will I qualify for the special low finance rates I see advertised? Probably not, Most of these special APR rate programs you see advertised for new vehicles are offered by the manufacturers own financing arm. Typically they have very strict guidelines to qualify for these low rates. The good news is that these rates are usually offered in lieu of a rebate. So if you dont qualify for the special low financing rates you can take the rebate off of the price instead.
What determines the interest rate I get when applying for auto loans with bad credit?- In general three things determine the rate that you will qualify for. 1) The year of the vehicle you are looking at. Usually the older the vehicle the higher the interest rate. 2) The length of the loan. Usually the longer the term you go the higher the interest rate will be. 3) Your credit score. Most lenders price their base rates in tiers. Usually it will be A,B,C,D or 1,2,3,4. Each of these tiers will have a minimum credit score requirement to meet. Their top tier will have a lower interest rate than their bottom tier. So your credit score will determine which tier you fall into. From there the lender may make adjustments for the term and year of the vehicle.
Why are interest rates higher on subprime loans?- Subprime loans are much riskier than a regular prime loan. The lower the credit scores the more propensities there are for default. Just because your credit score is low doesn’t mean you will not pay, but the lender has to generate enough income from these loans to cover the losses on the ones that do go bad. As an example if a lender approves 100 loans with a 500 credit score, more of those loans will default than if they approved 100 loans with a 750 credit score. Therefore they will charge a higher rate of interest on the 500 score loans to offset and losses they may incur and still remain profitable. Conversely they do not have to charge as high of a rate on the 750 credit score loans because there will be less losses to offset.
Is it possible to get approved if I already have had a repossession?-Yes, although it may be difficult and take some extra work on your part it is possible to get approved after a repossession. Subprime lenders are expecting to see bad credit and they realize that some people have had repossessions. There are a few things you can do to increase your chances for approval. 1)Be able to demonstrate that your financial problems are in the past. Let them know what circumstances caused you to fall behind on your payments. Was it a divorce?, medical problem?, layoff? Whatever the case be prepared to demonstrate what has changed. If you got divorced show them a copy of the divorce decree stating that the assets and the debt were divided in half, therefore you have less monthly bills than you did in the past. If you got laid off and are working again, produce pay stubs to show how much you are earning now. 2) Be able to come up with a substantial down payment. Putting money down shows the bank a commitment on your part and that you were disciplined enough to save up the money. It also helps you to fit within their loan to value guidelines. 3) If possible add a cosigner to your application. Having a strong cosigner on your loan gives the bank more security. They have two people responsible for the loan payment. If the buyer starts to get behind on the loan the lender will call the cosigner to help bring the loan current.
Can I lease a car with bad credit?- No, typically lenders require very good credit to get approved on a lease. If you know your credit is bad do not waste your time trying to get approved this way. You will save yourself a lot of headaches. Put your energy into getting approved for a regular loan and you will get much better results.
Is it true that it is harder to get approved on a new car than on a used one?- Not necessarily, when applying for auto loans with bad credit the guidelines that subprime lenders follow are basically the same. Where you run into trouble on new cars is that they are typically more expensive therefore the payments are going to be higher. Subprime lenders have very strict debt to income ratios that they must follow. The payment on a new car may not fit within those guidelines for your particular situation whereas a less expensive used car might. That is why it is perceived to be more difficult to get approved on a new vehicle. If your income justifies it though, and you fit within the banks debt ratio guidelines you can get approved on a new car.
