Trading in your old car or buying a new one requires you to submit a number of requirements such as your proof of income, personal information, supporting documents and other paperwork dealerships need.
If you have bad credit, there are processes you need to go through aside from the list of requirements you have to present to the lenders.
Know more about what to expect when applying for a car loan and what you need to do in order to be approved of your application.
- 1 Restore Your Credit Before Making a Purchase
- 2 Acquire Your Recent Credit Report
- 3 Estimate How Much You Can Afford
- 4 Identify Car Makes and Models that Fit Your Budget
- 5 Look Around for the Best Financing Deals
- 6 Have a Pre-Approved Loan
- 7 Stay Away from Subprime Lenders
- 8 Get a Co-Signer
- 9 Reveal Your Concerns or Ask More Questions
Restore Your Credit Before Making a Purchase
If you find yourself in a shaky credit situation, perhaps you could delay buying and wait for a few more months to pay off all your unpaid credit card balances.
Sometimes it could take six months to a year to rebuild your credit and if you can do this, you will have better car loan options.
But if your current automobile needs major and very expensive repairs or simply won’t function at all and you need one for your day-to-day travel with your family or for business purposes, then you have no choice but to get something new.
Acquire Your Recent Credit Report
To determine your credit score, check your credit report and see if the information provided is correct.
If you notice any errors on your credit report, this might affect your application for an auto loan, so have them corrected right away. Depending on the lender, they utilize varied credit score models and sometimes they are customized.
If you see that you have a low credit score, perhaps that’s because of having high balances that are close to your credit limit in your credit cards, late payments, no stable job and address, and bankruptcy, you should check to see which of these you can fix.
For example, being sure to pay debt obligations on time or paying some of them off completely will help increase your overall credit score.
Estimate How Much You Can Afford
Before you commence in buying a car, you should have an estimate or an idea of how much you can afford to spend on purchasing a vehicle.
Take note that it’s not only the monthly payment you should be concerned with but also other expenses that come with it, such as gas, insurance fees, preventive maintenance services, registration fees and the like.
Adding up all of this amount could lead you to paying extra and being unprepared for this could lead you to serious financial troubles.
Buying a car with bad credit leads you to pay higher interest rates than those who have good credit.
Ask yourself how much of a down payment do you have that includes equity and the monthly fees you can afford to shell out, as some dealers require a down payment and other dealers require very little, or almost Zero down, to get a car!
If you know someone who is an expert in doing the math, ask for accurate calculations and explanation on how car payments works.
Identify Car Makes and Models that Fit Your Budget
Car buyers should determine auto models that fit their needs and budget. Your dealership can give you options, so you should take some time to think about it considering the unit’s interior or exterior, transmission, horsepower, mileage, fuel efficiency, and so on.
If your car sales agent offers you with extended warranties and other add-ons that you don’t need, you have every right to refuse it since your budget is only limited to purchasing the car.
Stick to brands and models that are known to be reliable. If possible, have a third party inspector come and inspect the vehicle to make sure it is in proper working order.
Look Around for the Best Financing Deals
Before you drive away with your new car, seek other financing opportunities like visiting other dealerships and credit unions aside from your first choice and referrals gained.
Open up to them about your credit history and ask for rates so you have something to compare. This process requires you to be meticulous because once you are approved of a financing, the life of the loan takes a few years to complete, and this surely affects your other financial obligations.
Thus, it’s just reasonable to get the best deals you can find in the market. There are credit organizations that offer competitive loan rates, even if you have a low credit rating.
Whenever you look around for financial organizations to help you, you better prepare your driver’s license, latest pay stub to confirm your income, certificate of employment with your employer’s contact details, recent electric, cable or Internet bills to confirm that you are a resident of the address provided.
These are standard requirements when purchasing a car with bad credit.
In the event that one lender denies your loan application, you shouldn’t give up because there are more financial institutions you can approach immediately that cater to your needs.
Have a Pre-Approved Loan
Inquire about the pre-approval process from your bank, lending firm or credit union.
This is one way to shop for cars realistically. If you are denied, the car sales representative can help you in finding lenders who cater to individuals with low credit.
By seeking for a pre-approval, you can determine the loan amount the lender authorized you to borrow. This can further provide you with benefits like sticking to your budget and denying offers that are beyond your means. You can also make use of excellent interest rates and loan terms.
Your dealership can assist you in the pre-approval process, or you can apply it by yourself and not letting the salesman know that you already have the loan approved.
For some people, this can help them determine the car’s worth and the hidden costs associated with it.
Stay Away from Subprime Lenders
There are many organizations who are experts in subprime loans or the “buy here, pay here” outlets.
If you deal with lenders like these, expect to pay higher interest rate than the ones you can get at dealerships.
Some of them would even pressure you to get some add-ons or sign up for longer loan terms that you don’t need at all. However, if you opt to approach them as your last option, do your best to negotiate with the best possible terms.
Get a Co-Signer
This may be a risky tactic because once you default your loan, your co-signer is responsible for paying off what you have borrowed.
This can even lead to sour your relationship with your friend or relative if they co-sign for you and you will not pay your obligations.
So before you can ask somebody to be a co-signer, agree between yourself that you promise to pay your monthly fees without giving your co-signer too much of a hassle.
Thus, it should be someone who has a good credit record, someone you can trust, and someone who trusts you to complete paying the whole loan amount during the duration of the loan.
Reveal Your Concerns or Ask More Questions
A lot of people are trapped in bad credit situations because they weren’t well informed about the terms and conditions and other information they need to know prior to acquiring the loan.
So before looking for a car, getting a pre-approved loan or signing up for a loan contract, express your concerns to your dealership and throw a lot of questions you have in mind. It’s okay to be upfront to your financial adviser because they deal with people who have poor credit history and deal with various situations involving credit every day.
This can clear your mind of doubts and have peace of mind knowing that you can pay off your loan in a matter of time.
Acquiring an auto loan with bad credit sounds difficult and stressful because of the things you need to do prior to signing up and the requirements you have to secure and submit so your lender will just consider your application, but there are reputable bad credit car loan experts nowadays who can help you with going through the process of loan application.