The current economic challenges that the country is facing right now make getting a car loan unachievable especially for those who have bad credit ratings. Individuals with less than satisfactory credit ratings may get denials from many of the loans that they have applied for. Even if you did get approved, still interest rates tend to be shooting up. Sometimes, borrowers who already own a car are forced to use their vehicles as collateral in applying for short term loans. Nowadays, there are available bad credit auto loans which can help an individual get back on track and also reestablish his or her credit with a new/used vehicle loan. Bad credit auto loans create an opportunity for you to fulfill your dream of a new car while restoring your credit score.
People with bad credit history can still avail of an auto loan but with higher APR rates. Bad credit is not really a hindrance whenever enough disposable revenue is provided. However, it is important to do away with an increasing debt and income ratio. There are many lending firms who feature bad credit auto loans these days. The car usually don’t go the under the property of the borrower until the last payment has been made. Repayments can be widely spread for many years and long term car loans tend to have high interest rates.
Bad Credit Car Loans from Franchise Dealers
Also referred to as ‘second chance’ car loans or ‘credit repair’ car loans, auto loans for bad credit are usually made available through franchise car dealers. A person can either finance a new car or a used vehicle. Although a franchise dealer sells the car, a finance contract is still sold to the lender. A down payment is usually made plus a number of loan repayments. The car loan payments are oftentimes made every month and can either be made through mail or automatically debited from a borrower’s bank account. Any payment & nonpayment issues are made with the lender since they still hold the financing contract of the car. If you haven’t been responsibly fulfilling your financial obligations, most of these lenders report your repayment behavior to credit bureaus.
Advantages. Having your repayment history reported to the various credit bureaus is vital if you are someone who is in the process of reestablishing your credit and eventually would re enter the prime loan market place. New car dealers feature a wide variety of vehicles to choose from. Choose from new cars that have no miles or slightly used cars with lower miles. You can find bad credit car loan dealerships in your area by searching the type of car you are looking for combined with your city or state. For example, used cars Oklahoma City or Phoenix Ford Mustang. Loan terms usually start at 24 months can even extend up to 60 months.
Disadvantages. Not many car franchise dealers offer this type of loan program and their levels of experience may vary significantly. Auto loans for people with bad credit are usually coupled with expensive selling prices and higher interest rates. Any problems dealing with repayments are easily reflected on a borrower’s FICO and credit score.
Looking beyond the FICO score
Lending firms who feature bad credit auto loans look for ways on how they can approve your loan applications instead of turning it down. Many lenders look beyond a borrower’s set of FICO scores and consider several factors in determining the loan’s interest rates.
A person’s ability to pay the loan. This is probably the first and most important thing that many lenders look into. Can you afford to make monthly auto loan payments? It is not how much you make in a month but how much of your gross income is left after all the bills are paid. Bad credit lending institutions would opt for applicants who have a debt total of less than 40-50% of their monthly income. Higher down payments would also decrease the loan value ratio thus reducing lender’s risk.
An individual’s financial stability. A steady and constant source of income is also a positive factor that will help you get approved for the auto loan. Many lenders usually require you to have at least 1 year working experience under current employer. Higher scores are given for longer job tenures. Aside from that, living within the same geographical area shows a stable financial status. People constantly on the move are tagged as ‘skip hazards’ and are usually avoided by most lending companies.
A borrower’s willingness to pay. Looking beyond a person’s PTI and DTI ratios, lenders also look into the credit report to check if you have paid your past bills on time. They need to know ‘slow pay’ circumstances in your history- whether it is a ‘situational’ or ‘habitual’ bad credit. People with situational bad credit are more assured of a loan compared to habitual bad credit.
Related posts: