Guide To Applying For Bad Credit Car Loans

Vehicle Financing - An Overview

With the expenses that accompany a new or used vehicle purchase, most customers today need to finance or lease their vehicle purchase. Customers with poor, fair, or excellent credit history can get new or used car loans from a bank, credit union, or finance company. The customer uses the loan amount they receive from the loan lender to pay the car dealership for the vehicle once the customer and dealership have entered into a contract for purchasing a vehicle. Car buyers can also apply for an instant auto loan, or even a refinance car loan online. A loan from an auto dealership is another option for those looking for low APR financing. Some dealerships advertise low APR credit or even 0 APR for qualified buyers.

Before You Go to The Car Dealership

• Do some research. Figure out how much of an auto loan you can afford to finance.
• Identify what your transportation needs are.
• Obtain a copy of your credit report. Errors or negative information on your credit report can impact your ability to get credit as well as affect your car finance rates.
• Check online and through other sources to find out information about the vehicle you want to buy, including the price range.
• Contact various car loan lenders, banks, or credit unions to compare current car loan rates, especially if you require an equity loan for bad credit.
• Compare dealer quotes and bank or finance company quotes for new or used car loans.
• Be aware of any restrictions on very low car financing rates. Cheap car loans may not be so cheap in the long run.

What Happens When You Apply for Car Financing from A Financy Company, Bank, or Credit Union?

Most finance companies, banks or credit unions will ask you to complete a credit or loan application form. The information on this loan application form may include things like:

• Your name
• Date of birth
• Current and previous addresses and length of residency
• Current and previous employers and length of employment
• Your occupation
• Sources of income
• Total gross monthly income
• Financial information about your existing credit accounts

Lenders usually assess your car loan application based on a system of credit scoring. Credit scoring includes things like your credit history, the length of your employment and your income and expenses. It can also include your credit report. Your credit report contains information about your past and current debts and includes payment information from public records such as any bankruptcy filing from court documents.

The credit report shows detailed information about each account and it’s payment history along with any comments related to legal steps taken with regards to collection action.

Obviously your credit report and score are very important factors when it comes to a bank, finance company, or credit union’s evaluation of your completed car loan (credit) application, especially when you are applying for a bad credit equity loan.

What Does Dealership Financing Offer A Vehicle Buyer?

Dealership financing is a common method of vehicle financing.  This is where a buyer and the car dealership enter a contract where the customer agrees to pay the financed amount plus the agreed upon finance charges over a specified time period.  While the vehicle dealership may keep the contract, they usually sell it to a finance company, bank or credit union, which actually collects the payments and provides service for the account.

Dealership financing can offer the following benefits to a customer:

1. The convenience of offering financing in one place for vehicle buyers
2. The dealership may have a relationship with several banks or finance companies, although the lenders do not deal directly with the prospective car buyer. This means the dealership can offer buyers a variety of new or used car financing options, even for bad credit customers.
3. Dealerships may offer special incentive programs sponsored by manufacturers, such as low APR finance programs for car buyers.

Most dealerships provide one-stop shopping for car financing and auto insurance. The dealer may also offer manufacturer incentives, such as 0 APR or low APR credit, or cash back incentives. You can often see these special incentives advertised in your area. Be sure to ask the dealer whether the vehicle make and model year you are interested in buying has any special financing incentives or rebates. These type of discounted rates are generally not negotiable and are subject to availability based on the consumer’s credit history.

If there are no special financing incentives available, you can try to negotiate a low APR (annual percentage rate) and terms for payment with the dealership yourself, in the same way you would negotiate the price of the vehicle. You can negotiate the APR before or after the dealership accepts and processes your loan application.

It’s important to evaluate your own financial situation before you finance any new or used vehicle purchase.  

There are also several laws that regulate and authorize vehicle dealership leasing and financing. You can familiarize yourself with these by contacting the appropriate federal and state law offices and consumer protection agencies in your location.

When Is A Co-signer Needed?

If a car buyer has zero credit history, or poor credit history, the finance company, bank, or credit union may require that a co-signer must sign the car finance contract because of any problems related to the buyer’s credit history.

Co-signers need to be aware that there is a high likelihood they may be asked to repay the debt. If you are asked to be a co-signer, it’s very important to be certain that you are able to afford to repay the debt before you agree to be somebody’s co-signer. As a co-signer, you take equal responsibility for repayment of the loan, and what happens in the account will be reflected on your credit history as well. Be cautious if you are ever asked to co-sign for someone else’s auto loan.

Car Loans for Bad Credit May Cost More When You Have Poor Credit History

It is possible to find credit lenders even if you have no credit, or a bad credit history. Car loans are available for people in all types of financial situations. It’s possible for people with a low credit score, or even bankruptcy in their past to get bad credit auto loans.

One drawback with getting auto loans for poor credit is that you may have to pay higher finance charges for borrowing the money. The APR (Annual Percentage Rate) on the loan is based on your credit history. Many dealerships and lenders charge higher interest rates and fees for car loans for bad credit history buyers.

If you are applying for a car loan, you should be above 18 years of age and have a regular source of income, established residency, and live in a state where the lender is currently doing business. Some lenders also stipulate that any bankruptcy must be discharged.

Bad credit car loan companies frequently have partnerships established with various car dealers. If you get a car loan from one of these finance companies, you may need to purchase a car from the car dealer associated with them. Even if you are pre-qualified for a loan, the final approval usually comes from the dealer associated with the finance company.

Tips to Help You Get Approved for a Bad Credit Auto Loan

Make Timely Payments on Your Other Debts to Improve Your Credit, and Save Money On Your Loan

Before you apply for a car loan, try to improve your credit history. Lenders use your credit history information to determine how much the interest rate will be for your car loan. This makes your credit history and credit score a very important factor in your car loan costs. In a situation where your loan application does not get approved, the lender may suggest ways for you to improve your credit rating.

The easiest way to improve your credit rating is to make timely payments on your other debts. The sooner you begin doing this before applying for your car loan, the more likely it is that a lender will approve your car purchase finance.

A Downpayment Also Increases Your Chances for Being Approved

Having some cash to put towards a down payment will also improve your chance for being approved by loan lenders. If you apply for a car loan that is less than the vehicle’s appraised value, you are less of a risk to the lender because they know that even if you don’t pay your loan, they can resell the vehicle and get their money back.

Saving money for a downpayment or trading in a vehicle you already own will reduce the amount you need to borrow from a loan lender. In some cases, your trade-in value will take care of the down payment on your new or used vehicle purchase.

Shop Around for Special Offers and Best Interest Rates

Get an idea of what type of loan and interest rate you can get from other lenders before heading to a dealership or car lot. The internet is a good place to find out if you can get a decent rate from loan lenders. It pays to do your research even if you get a car loan at the car lot. At least you’ll know whether the rates they are offering you are realistic or not. Even with a poor credit history, you should be able to get a secured loan at a decent interest rate if you're willing to do some research beforehand.

Finding Credit Lenders for Bad Credit Auto Loans

The internet has made it easier and more convenient than ever for individuals to find loan lenders who are willing to work with people with poor credit. Many online credit lenders can help you with a bad credit car loan. It’s important to do your research carefully so that you end up dealing only with loan lenders who are genuinely interested in helping people with bad credit.

Financing Terms – Know Them Before You Sign the Paperwork

• Amount Financed – This is the amount of the credit or loan that is provided to you by the lender
• Annual Percentage Rate (also known as APR) – This is the cost of the credit expressed as a percentage
• Assignee – This is the finance company, bank, or credit union that purchases the contract from the dealership
• Credit Insurance – This is optional insurance which can pay your unpaid balance if you become disabled or die. The cost of this optional credit insurance must be disclosed in writing. If you want this type of insurance, you must also agree to it in writing
• Down Payment – This is the initial amount you pay on the purchase to reduce the amount that you will be financing
• Extended Service Contract – This is optional protection on the vehicle components which is can be purchased to supplement an existing warranty included with the new or used vehicle you are purchasing
• Finance Charge –This is the amount you need to pay to use the credit
• Fixed Rate Financing – With this, the finance rate will remain the same over entire the life of the contract
• Guaranteed Auto Protection (also known as GAP) – If your vehicle is destroyed or stolen before you have paid your credit obligation, this optional protection offers to pay the difference between the amount you owe on your vehicle and the amount you would receive from your insurance company
• Monthly Payment Amount – This is the amount due each month for payment of your loan
• Negotiated Price of the Vehicle – This is the purchase price for the vehicle, as agreed on by the purchaser and the auto dealer
• Variable Rate Financing – With this type of financing, the amount you must pay changes over the life of the contract because the rate varies

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