Car Finance With Poor Credit History
The term "bad credit" can mean many different things. Banks are able to look at your credit and determine whether to approve a loan. Banks consider credit history and score as well as overall debt-to-income ratio. For example, someone who makes $100,000 per year with an extensive amount of credit out will also be considered "bad credit," or a lending risk. There are, however, credit services that serve those with poor credit histories.
Other People Are Reading
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Dealership Purchase
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If you go to a large dealership to obtain financing, you may fare better than someone trying to find financing on his or her own. Dealerships want to sell vehicles, and larger dealers use various banks. Dealerships maintain positive relationships with banks and may be able to call in a favor or structure financing on your behalf even if you have not gotten approved elsewhere. Contact a dealership to let someone know about your credit situation, and the dealership will let you know whether it can get you approved or not.
Buy-Here Pay-Here Lots
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For those who cannot find approval though a traditional lending institution, a "buy-here, pay-here" lot is a good bet. The business itself provides this kind of financing and does not involve any traditional approval methods. You will, however, have to provide a large down payment, and you will have a high interest rate or have to pay more for a car than you normally would through a dealer.
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Rates and Negotiating
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Wherever you get approval, you will most likely pay a high interest rate. Rates can go into the high 20 percent range, which will cost a great deal over time. Look under "Resources" on this page to access a finance calculator to determine the difference paid over time based on rates. For those who cannot obtain an approval through traditional methods of dealer or local bank financing, you will generally lose your power of negotiating.
Cosigners
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A co-signer with a strong credit history, high credit score and low debt-to-income ratio may be able to help solve your problems. Banks will approve you at your co-signer's approved rate even though you are on the loan. Beyond a fair rate, you will also have a lower monthly payment and may not have to provide any money for a down payment.
Money Down
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When trying to obtain financing with bad credit, expect to be asked to put a lot of money down to gain an approval. This is because of loan-to-value (LTV) ratios. If you can find an approval with your credit standing, the bank will require equity in your vehicle at the time the loan is extended to you in case of failure to pay. You may be approved with an LTV ratio as low as 60 percent, meaning you will have to put down all taxes and fees in addition to cash toward the car. Expect this amount to be thousands of dollars.
Internet Options
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There are national banks that will lend to people who have bad credit. You can do a search for "bad credit auto loans" online, but proceed with caution. High rates and long terms can leave you unable to get out of your vehicle before the loan is paid off. For example; if you pay $500 per month (which is extremely high) because of a high interest rate and did not buy your car at decently discounted price, you will not be able to trade out of it because of the interest added daily, or per diem. You will always owe more money than the car is worth unless you are able to pay on principal in addition to a high monthly payment.
Refinancing
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If you are able to secure a loan for your car but unhappy with the payment or interest rate, you can refinance your vehicle at a later date. You can improve your credit by making timely payments and taking care of issues on your credit report, if possible. When your credit improves, you can refinance your vehicle at a lower rate.
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References
Resources
- Photo Credit keys to the new car image by Jake Hellbach from Fotolia.com
