Today, many consumers are experiencing difficulties with debt payments. With this happening for a long period of time, it finally leads to bad credit scores and sometimes bankruptcy. Even after payments are caught up on, the damage can still be seen. The financial crisis of today has made the lending in the banking industry very difficult and it is often very hard to finance a new or even used car.
Fortunately, for people who have found themselves with bad credit there are now auto loans for bad credit. These have become quite common as almost one quarter of Americans have many flaws on their credit. Therefore, getting an auto loan with bad credit should not be a problem for anyone today.
There are a few things that you can do to make sure you do not have any hassles when you are applying for an auto loan:
1. Review your credit. Experts recommend that you check your credit report at least once every year for any mistakes or errors. This is even more important if you are applying for a bad credit auto loan. There are many websites that provide you with a free copy of your report every 12 months.
2. Determine the amount you want to spend. Before applying for an auto loan, you need to know how much of a down payment and what kind of monthly payment you can afford. There are many car loan calculators available that can help you to determine these.
3. Get all documentation prepared. With the application, you may need to provide proof of income and employment. It helps to go ahead and have these in your hand when you are applying for the loan; this will only help to speed up the process for you.
4. Maintain a clean credit history. You need to make all payments of debts on time every month. This will help to keep your credit in good standing.
Lenders for bad credit auto loans
When having bad credit, it may be recommended that you find a small car dealer who offers their own financing; this person is called an auto loan broker. They often advertise by saying ‘let your job be your credit’. An auto loan broker is usually one of two types of lenders: a subprime or hard money lender.
A subprime lender charges a higher interest rate than the current rate that is charged by most conventional lenders. This lender wants to help customers with bad credit get a decent loan for a good car. Even though, the rates are a bit higher, it is typically not enough to turn buyers away.
A hard money lender does not follow the traditional rules that normally protect banks from people defaulting on loans. This lender does not ask for as much information as a subprime lender does and often does not do things like verify income of the customer. This in turn means they have a lot of people who default on their loans so they have to charge a very high rate to compensate for the defaults. When using a hard money lender, the borrower has to have collateral to put up against the loan.
The borrower of a bad credit auto loan comes out better if working with a subprime lender. This lender not only helps provide a car with bad credit, but can also help someone who has previously filed bankruptcy and looking for a new start.
Advantages of bad credit auto loans
Auto loans for bad credit do have advantages that make the entire process worth the time. In the beginning, you may have problems or doubt the idea of getting this loan. But the truth is the advantages of this type of loan outweigh the disadvantages.
1. Quick and easy. Most lenders will ask you to fill out an application and provide a few simple documents, including proof of income, job, expenses, etc.
2. Improves your credit score. A bad credit auto loan will improve your credit. Once you are approved for the loan and begin making regular payments, you will see an improvement in your credit score. This is because your debt will be decreasing and you are showing you can pay each month and on time.
When applying for a bad credit auto loan, it is best to gather the following information to have with you:
1. Income history and stability
2. Current budget
3. Current payment behavior
4. Total debt payments in relation to current income
5. Down payment
6. Whether or not you are filing bankruptcy or not at the current time
7. FICO score
If you are in a difficult financial situation, today there is hope for getting approved for a bad credit auto loan. They have been created for people who do not qualify for the traditional loan because of past credit history. There are now many auto dealerships who will take a risk on many borrowers depending on their situation. It may take some work on the borrower’s part, but once approved it will have all seemed so quick and easy.