Many people don’t get approved for an auto loan with bad credit because they don’t use their heads when they apply, hurriedly completing their auto loan applications, not comprehending the meaning, to the dealership, of the answers that they are giving. Think of your auto loan application as though it were a mathematical equation. That is to say, each tidbit of information that you give about yourself and your finances adds up in the end to either an approval of your auto loan with bad credit application, or a denial; any one positive item could wipe out any one or more negative items, and vice versa.
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Most automobile dealerships have to purchase their entire inventory; this includes new cars and trucks, used cars, and trucks and vehicles that they will lease. Consequently, automobile dealers assess any applicant that wants to drive off of the lot with one of their cars in terms of “risk”; how risky is it that this person might just drive off the lot and never make a car payment at all, or how much of a chance is there that the applicant won’t have the financial ability to keep up with their monthly payments? The higher the “risk” is perceived to be by the dealership and/or lender, the harder your chances for approval of your auto loan with bad credit become, and, if you are approved, the higher your interest rate will be along with more stringent terms. Therefore, doing anything and everything possible to nullify or mitigate the dealership and/or lender’s perceived risk is imperative.
To begin with, if you have the time to do so, you should think about addressing the negative items on your credit record, having as many of them removed as possible, to bring up your overall credit score. You can dispute any item on your credit record with the credit bureaus directly (Experian, TransUnion, and Equifax) to get it removed. This can be very effective, but can also be time very consuming, taking several months to get your desired results. However, for the sake of this article, let’s assume that you’re finding How to Get a Car Loan with Bad Credit, and that you don’t have a few month’s time to improve your credit score first. There are other factors that you control that can mitigate a dealership’s risk in making a loan to you.
One of the more important factors about you that will be used to determine if you are an acceptable candidate for an auto loan with bad credit is your monthly income. The higher that your income is, the better that you look to dealerships and lenders. Even if you have a history of bad credit, auto loans are attainable if you have a high enough income, and, in some cases, are willing to make a down payment. As your income is one of the most important facts that you provide about yourself on your auto loan application, make absolutely certain that you are counting every dime of your income; count your monthly income from your job(s), investments, even if you have a paper route, do odd jobs, or have an allowance from a family member. The monthly income that you state on your auto loan application should be the total of all of these and any other income source that you have. Be mindful that you will often need to provide proof of these incomes to the dealership or lender. This can be paycheck stubs, bank statements, letters, or invoices, in the case of being self-employed.
An interesting, little known factor that will often be used to consider your auto loan with bad credit application is the ratio of your monthly housing payment (i.e. your share of the rent, or mortgage, etc.) vs. your total monthly income. For instance, if your monthly housing cost is $300.00 and your total monthly income is $1,200, then the ratio of your housing cost vs. your income is 25%, or .25. Dealerships and lenders like to see a housing cost vs. income ratio of up to 35% or so. Anything over 40% and the dealership or lender may need convincing by some other means, like a down payment or a cosigner, that you will be able to make your monthly payments. Therefore, when completing your bad credit auto loan application, make certain that you only claim to pay “your share” of the rent or mortgage. That is to say, if your apartment’s rent is $600 and you have two roommates that equally split that cost with you, then you should only claim $200 as your monthly housing cost. The same goes for a mortgage that you are paying with a partner or spouse.
As a side note to the paragraph above, consider the same when theory when you are stating the amount of other debts that you pay monthly (credit cards, store cards, loans, etc.) on your auto loan with bad credit application; only claim what your loan or credit card’s minimum monthly payments are, not what you pay every month, if you are paying any extra to bring down your balances.
One way to impress an automobile dealership or lender is to make as large of a down payment at the time of your auto loan application as is possible. Automobile dealerships and their lenders will often require a small down payment with an auto loan (with bad credit) application, often as little as $199 or so. However, offering to make a higher down payment can help to guarantee your auto loan approval, as well as give you the latitude to negotiate for a lower rate of interest and better terms. After all, by paying more at the beginning of your auto loan, you become less of a risk to the lender.
Beyond the items mentioned above are factors that are usually out of the control of the auto loan applicant. For instance, how long have you lived at your current home address, more than a year? Also, how long have you been employed by the main employer that you list in your application for an auto loan with bad credit? The longer that you show that you have lived in the same place and held the same job, the better. Having had the same address and job demonstrates stability to the automobile dealership and/or lender, and they consider stability to be an indicator of your likelihood to make your auto loan payments on time.
The bottom line to this article is that you should take your time when completing an application for an auto loan for bad credit, because each and every answer will tip the scales in one direction or the other when it comes to the approval of your auto loan, the interest rate that you will wind up paying, and the terms of your auto loan contract. Pay attention and apply smart!
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