Are you in the search for a new car but having troubles getting a loan? Is it because you are bankrupt? Is it because you have a bad credit score? Or is it probably because you do not have enough money to make a down payment? Worry no more! Being unable to drive your own car because of the reasons stated above and many others is a thing of the past now.
People with the same predicament as you, with the right guidance, can get a car even with poor credit score rating. This article will take you through all you need to know when looking for a car dealer that accepts bad credit.
What exactly is a bad credit car loan?
Banks, credit unions, and other major direct lenders usually make your credit history a very vital factor to consider when determining whether to approve your loan or not. This, therefore, locks out millions of other people who really want to purchase a car due to the aforementioned circumstances.
In order to fill in the gap, some lenders have stepped up to offer people loans even with bad credit records. These subprime lenders give a chance to people with bad, low or no credit, and other credit troubles they may be facing to offer them auto financing. Different bad credit auto dealerships have their own unique requirements but what they generally look at is your total income, your employment status, your residence, your billing history, and many other factors.
How do bad credit auto loans work?
Subprime lenders do not directly get you the car you want but they work with dealerships which you interact directly with. The main problem here is, not all car dealerships are signed up with subprime lenders. You have to conduct your research and find out which dealerships are signed up with which subprime lenders.
Once you find a dealership offering such type of offers, you will meet up with a representative from their finance department. This official will initiate the process of analyzing your situation and help you apply for an auto loan from there signed up lenders. They send your application to their three or so lenders, helping you increase the chances of securing the loan.
If approved, you will receive a ‘payment call’ which shows the details of your loan. The amount of loan that has been approved for you, your interest rates, for how long you will repay the loan, and many other details are included.
If satisfied with the amount of loan you have been awarded, the dealership will show you their inventory of cars that you qualify to get and you can take your time to review them all. You can check everything about a car before signing and committing to the loan arrangement. The dealerships will even organize a test drive for you while others can even offer to you a 48-hour return policy where you can go test drive the car on your own and return it within the stipulated period. Only after you have been content with the vehicle that you can sign the loan agreement and the car is all yours!
Requirements for one to qualify for bad credit auto loans
There is no standard regulation which directs lenders on what requirements they should ask for from buyers. This, therefore, means that whatever information they may need from you will vary from one place to another. However, there are certain common requirements which you must arm yourself with before going to apply for a bad credit car loan. Let us check them out;
A valid driver’s license is enough to prove your identity. In some places, they may ask you for other documents.
- Regular and stable income
You must be ready to declare your total monthly income. The income must be stable and regular in order for you to be in a position to repay the loan on time. You can print out and bring a copy of your recent pay stubs. If self-employed, you can bring a copy of your tax returns report.
- Stable employment
You should show proof of employment in order for you to qualify for a car loan. Your employment status must be verifiable and stable.
Lenders will want to prove that you live at the same location you claim to do so. Some copies of recent utility bills will do just fine not unless asked otherwise. Most lenders also want proof that your residency is stable and that you do not shift from one location to another.
- Verifiable phone and e-mail addresses
The lenders will want to ensure that they can reach out to you whenever. You ought to provide a verifiable phone and e-mail address as listed in the application.
- Down payment
Different lenders will require different rates for a down payment. Other car dealerships no credit check no down payment also exist, just that there may be further requirements you have to meet. Some lenders may ask you to make a down payment of 10% the total cost of the vehicle or whichever amount you decide. Remember, the higher the deposit, the lower your monthly rates.
- Trade-in information
If planning to do away with your old car and want to get a new one, you can always opt for a trade-in offer. In simpler terms, it is more like making a down payment. Ensure you have all the necessary documents that prove that the vehicle belongs to you and be ready to sign it away.
Although not a very common requirement, some lenders will ask you to provide a list of referees complete with all their details.
Finding a car dealer that accepts bad credit
Before you begin your search, you should understand that not all lenders have offers for low, bad, or no credit situations. Only a few select subprime lenders have special finance dealerships which you can take advantage of. Below are placed you can look for when searching for a car dealer that accepts bad credit.
Auto dealerships that work with Repossessions
Finding a car dealership which works with reports and bad credit should be one of your top priorities as they offer special finance dealerships. Subprime lenders can only be accessed from special finance dealerships meaning you cannot deal directly with them. Subprime lenders usually have different rules and requirements when dealing with those who wish to get a car after repossession.
Such regulations may include, inter alia; the repossession must be at least one year old not unless it was included in a bankruptcy case and that a buyer should not have a number of reports not unless they were also included in the bankruptcy report.
There are a number of ways of increasing your chances of getting a vehicle after repossession. With the right guidelines followed, you can actually gradually improve your credit score.
Car dealers who deal with bankruptcies are also there to serve people with special financial requirements. This is mainly because applying for a car loan after a bankruptcy has been filed can be a major problem. It should, however, be noted that there are different types of bankruptcy. For shorter period bankruptcies, let us say it ends in a couple of months, it is advisable to just wait until then when it has been discharged and your credit score improved.
Buy here pay here car dealerships
Buy here pay here dealerships are just the best option for anyone looking to get a car loan financed. Whether you have a good or bad credit score, it would not really matter as other factors are considered. It is safe to say that buy here pays here dealerships are some of the best car dealers that accept bad credit. With this type of arrangement, you do not necessarily have to look for other lenders as there is in-house financing which is available for all.
You ought to be careful while dealing with such options though as some buy here pay here dealers charge exorbitant interest rates. There are others, however, who charge minimally charging as low as 15%. While this option saves you the time you would have otherwise spent searching for subprime lenders and also getting you driving within a short time, there are also some issues that require checking on.
Just as the name suggests, buy here and pay here, you may be obliged to pay your installments as agreed at the dealership in person. This may be disadvantageous especially if you live far or some unavoidable factors make may make you miss to pay on time. This issue may, however, be sorted when you give consent for the dealership to automatically deduct the payments at the stipulated time.
There are also a few worries that most buy here pay here car dealerships do not report your loan repayment to credit agencies. This means even if you pay your loans on time, it may not have any positive impact on your credit score.
Tips for buying a car with bad credit
Having bad credit records may hinder your chances of getting the best deals and offers you may get from selected auto dealerships. With the right guidelines and tips to guide you, having bad credit will no longer be a stumbling block to you when getting your next car. Below are our top 7 tips you can adhere to in order to increase your chances of getting a bad credit auto loan application approved.
1. Work on your credit report
Before going car shopping, work on cleaning bad credit records. This includes repaying off all past-due accounts and disputing any errors which may appear on your credit report. When planning to buy a car, you should even work on solving this even if it is months or even years before, in order to increase your chances of getting better offers.
2. Avoid bad credit items before the application
Avoid any major credit obligations as you try cleaning your records prior to applying for a car loan. Any red flags can ultimately hurt your chances of getting better offers.
3. Conduct extensive research on what rates you may get
You can conduct online research in order to find out where your chances of getting a good offer stand and what interest rates you may be required to stick to. Making a phone call to dealers and lenders will also give you a bigger picture of the situation.
4. Have realistic expectations
In order to avoid any disappointments, it is best to know where your current situation will take you and what it will get you. You need to be mentally ready for any results. Make sure to only get a car you can afford to repay after your loan request has been approved. Do not take a much expensive vehicle and end up in financial worries in the future.
You may also need to skip the extras. The features that you were initially hoping to get in a car will cost you an extra buck. This eventually translates into a bigger loan to repay.
5. Prepare a larger down payment
The larger your down payment, the lower the interest rates you will have to pay and vice versa.
6. Review the vehicle before purchasing it
In many cases, some bad credit dealerships take advantage of buyers and offer them poor quality vehicles. Ensure you check out the entire inventory, go through and check all the parts of the car and confirm that it does not have any issues. You may also take it for a test drive or have a mechanic come over and check it out for you.
7. Carefully read through all the paperwork
Ensure you go through the paperwork understanding every detail there is. Some details can be much hidden and not being aware of it can bring you troubles in the future. Remember, your finances are on the line here, and so is your credit record.
You now have the necessary tips to get you started with your journey of getting a new car even with bad credit. Follow our tips and you will be set. Beware of the many scams that target people with bad credit. Have a rational mind while approaching dealerships and do not be in a rush to sign up for anything before getting all the information on it. All the best!