How to Get Bad Credit Auto Loans Fast
Did you know that you can get an affordable bad credit auto loan from legit credit lending institutions?
Bad credit isn’t always a result of poor financial decisions. During the 2008-2010 economic recession, most employees had a tough time keeping up with auto loan and mortgage payments. Unfortunately, creditors still reported them to credit reference bureaus despite the fact that the entire national economy was facing a major crisis.
If you hate arriving to work late and worrying about your kids’ safety while traveling to school, you definitely need a car. By the time you finish reading these questions on how bad credit auto Loans work, you’ll feel confident about applying for one today.
1. Five frequently asked questions car buyers have when applying for Bad Credit Auto Loans
1. Can I get a bad credit auto loan if my credit score is 500?
Yes, you can.
Your auto loan lender will require you to pay a cash deposit upfront. If you pay a huge deposit, it lowers your monthly installments. At this rate, you’ll be able to pay your installments on time and improve your credit score by a huge margin.
2. How much should I pay as a deposit on a new car if I have bad credit?
Truth is, car dealerships have the freedom to set their own terms and conditions for bad credit auto loans. Your preferred car dealer might ask for 30 % while another dealer situated across town demands for 50%.
The car’s value also determines how much you’ll put down for a bad credit auto loan. If you want to spend less on your car deposit, choose an affordable car.
3. Can I get a bad credit auto loan without a cosigner?
It depends on a few factors. Car buyers with credit scores below 500 need cosigners in order to lower the risk of default. If a car buyer lacks a good debt-to-income ratio, he or she requires a cosigner in order to receive a bad credit car loan. The same case applies to a car buyer who recently moved into a new city.
4. Can I get a bad credit auto loan without putting money down?
Nine out of ten creditors require cash deposits before lending bad credit auto loans. Why? Because an auto loan is a form of secured debt. Therefore, you need to deposit a collateral asset in order to receive credit.
Truth is, less than 1% of registered credit institutions offer no-money-down bad credit auto loans. They usually thrive on a customer’s desperation by imposing expensive interest rates, high late payment fees, and short repayment periods.
5. Is it better to lease or buy a car with bad credit?
You’ll spend less time seeking a bad credit auto loan compared to a bad credit auto lease. Usually, car dealers only provide leases to clients with a minimum credit score of 719. Plus, most car dealers reserve car dealers for high-end models because they make more profit when customers pay high monthly lease payments.
Learn More: Can I Live Without a Car? A Personal Checklist
2. When should I apply for a bad credit auto loan?
1. When you have a stable source of income
If you’re working under a temporary contract, buying a car using an auto loan installment is risky because you’re not sure whether your client will renew the contract. However, if the client feels highly satisfied and offers you a five-year contract with good pay, you’ll be in a better position to own a car.
Having a stable source of income will enable you to save up for a good deposit fast. When you have a decent deposit, you have better bargaining power. You also have the freedom to choose the car you want as opposed to settling for the dealer’s choice.
2. When you want major improvements in your credit score
In the credit industry, secured debts bear more importance than unsecured debts. That’s why skipping a few auto loan or mortgage payments affects one’s credit rating terribly. Did you know that skipped mortgage payments remain visible in your credit report for a period of five years?
If you’re in a better financial situation, you can improve your credit score tremendously by applying for a bad credit auto loan. It doesn’t matter the value of your auto loan because it’s still a secured loan. Just ensure that you pay all your installments on time.
3. When you can afford a better car
If you own a car that’s over eight years old, it’s time you considered replacing it with a more recent motor vehicle. Age refers to the year of manufacture. A car that’s over eight years old consumes more fuel and emits higher air pollution compared to cars produced in the past 3-5 years. Nowadays, auto insurance companies offer cheap insurance quotes to drivers who own environmentally friendly motor vehicles.
You can actually own a car that’s less than five years if you have a good down payment. Consider selling your car then channel the sales to your savings account.
4. When your debt-to-income ratio improves significantly
A debt-to-income ratio refers to the percentage of your debts in comparison to your monthly gross income. The CFPB recommends that you keep your debt-to-income ratio below 43%. Perhaps your financial situation recently improved significantly after you finished paying off your mortgage and college student loans.
Now that you have a good disposable income, you can save up for a car deposit in a few months. You won’t have challenges paying your auto loan installments on time because you already have a good debt-to-income ratio.
5. When you get a good trade-in deal
You’ll meet car dealers who accept trade-ins from customers applying for bad credit auto loans. If you own a car that’s less than five years old, you’ll find willing car dealers. However, some sly car sales reps use tricks in order to give you a really low value for your car. If it isn’t low balling, they will tell you that the management said that they will only accept your trade-in if you take a more expensive car than your preference.
You can get a good trade-in deal by consulting with a more experienced car owner. How? By learning the things to look out for when dealing with car sales reps. Moreover, your go-to car consultant can refer you to good car dealers who offer reasonable prices for trade-ins.
3. Five mistakes you should avoid when applying for a bad credit auto loan
1. Ignoring your credit score
Just because you skipped some credit card and mortgage payments doesn’t mean that you should totally ignore your credit report. Skipped payments for unsecured debts disappear from your credit report after two years. If you borrowed a bank loan and repaid it in full, you should download your credit report to check the improvement.
Some bad credit auto loan applicants assume that car dealers treat bad credit equally. However, this is a wrong and costly assumption because you get different interest rates for different credit scores. A car buyer with a credit score of 500 pays 16.96% interest on their bad credit auto loan while a credit rating of 620 pays 10%. A dishonest car salesman can sign you up for a more costly bad credit auto loan in order to make more profit.
Learn More: 6 Unexpected Ways Having Bad Credit Can Hurt You
If the car dealer downloads a buyer’s credit report and realizes that their credit score doesn’t meet application requirements, they don’t refund application fees. Plus, the creditor loses points credit score points. When a creditor downloads a car buyer’s credit report from credit reference bureaus, the buyer loses five points.
2. Allowing every potential creditor you meet to do a hard inquiry
A hard inquiry is whereby a creditor downloads a loan applicant’s credit report from credit reference bureaus. You now know that each hard inquiry costs five credit score points. Fortunately, if your potential creditors download your credit report within a period of seven days, you’ll only lose five points.
Whenever a potential lender notices multiple hard inquiries occurring at consecutive dates, they realize that creditors have rejected your applications. This might discourage them from lending you a bad credit auto loan.
3. Failing to do background checks on the lender
In November 2017, an employee of Guam-based Prestige Automobiles admitted in a court of law that she intentionally used car buyers’ personal information to run an illegal car shipping scheme. She obtained information by going through tax information provided by car buyers to register new luxury cars using false identities.
Some car dealership employees collaborate with identity thieves to steal personal information obtained from auto loan application forms. You need to confirm the identity of your creditor by visiting relevant credit regulation bodies in your federal state. Check what past customers have said about that particular credit lending institution by visiting consumer review websites such as the Better Business Bureau.
4. Rushing to sign up for extra services
Some car dealers provide buyers with car insurance forms after customers qualify for bad credit auto loans. This seems quite thoughtful because a car buyer won’t need to spend time shopping for an auto insurance cover. However, your car dealer is looking for another profit-making stream from you. In most cases, you can find more affordable car insurance quotes from a different provider.
5. Failing to do a thorough inspection of the car you want to purchase
Have you heard of the saying, look before you leap?
Car sales reps usually earn a low base salary. They rely on commissions from car sales to boost their monthly income to a decent level. Unfortunately, this remuneration model encourages deception. That’s why some car salesmen rely on tricks instead of facts when engaging potential buyers.
Always request a friend who’s good with cars to accompany you to car dealerships. Their rich knowledge about cars will help you identify badly wrecked cars camouflaged with appealing paint jobs.
4. Five tips that will help you acquire a bad credit auto loan fast
1. Create a get-out-of-debt plan
The biggest limitation of applying for a bad credit auto loan is that you pay expensive interest rates compared to typical auto loans. If you use a car payment calculator, you’ll realize that a buyer with a credit score ranging from 500-525 pays four times more interest compared to a buyer with a credit score of 719.
Focus on creating a savings plan that will help you clear your major debts within 12 months. You’ll probably need to save 30 % of your monthly income for the next one year in order to pay lump sums amounts. Once your credit score improves significantly, you’ll get a much lower interest rate than you would have with your previous credit rating.
2. Save up for a huge cash deposit
A bad credit auto loan is a form of secured financing. You can compensate for your poor credit rating by paying a huge cash deposit. For instance, 50 % of the agreed buying price. Paying a huge deposit assures your credit lender of your commitment towards repaying the loan on time.
3. Show up with a good cosigner
A bad credit auto loan cosigner should have a minimum credit score of 719. He or she should have a debt-to-income ratio that’s below 43 %. Your auto loan provider will also ask your cosigner to provide copies of their monthly paychecks to prove their ability to back your loan in case you fall behind on several payments.
4. Getting a bad credit auto loan is easy!
A bad credit auto loan can be the springboard you need to improve your credit score by a huge margin. If your income has improved significantly, make sure you improve your credit rating by implementing a get-out-of-debt plan. Otherwise, this poor credit score will force you to pay very high-interest rates.
Make sure you avoid doing the five costly mistakes when applying for a bad credit auto loan. Remember, you’re not under any obligation whenever window shopping for an affordable bad credit auto loan. So, this means that you shouldn’t allow anyone to download your credit report.