How to Buy a Car When You Have Bad Credit Problems
Finding a lender when your credit is poor can be difficult. Knowing what a lender wants from you in order to provide a loan can put you on the path to finding one.
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Types
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When you have bad credit, buying a vehicle with cash is an option. If you need more of a car than you can afford with cash, try to find a lender. Many subprime lenders will provide a loan to risky borrowers (risk is determined by credit). You can use the Internet to find one (type "bad credit loan" into a search engine) or work with a dealer who uses a variety of lenders (usually a large new-car dealer).
Effects
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If you can find approval for a loan when you have bad credit, you can expect to pay higher-than-average interest rates. If a dealership or outside lender has approved you for a loan, examine the rate and monthly payments thoroughly. Rates are as high as 29 percent in some states, meaning that you'll pay much more for your vehicle than the purchase price. Use an auto loan calculator (see Resources) to determine the effects of the interest rate offered to you and whether the high rate is worthwhile.
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Considerations
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With bad credit, the bank prefers to see that potential buyers have a stable address and employer (for at least two years). A gross annual income of at least $20,000 is needed, though more income is always better. Expect to prove employment information by providing your most recent pay stub, which lists your year-to-date income.
Address verification is provided by your most recent utility bill. No major revolving loans, such as a current auto loan or mortgage, can be in default at the time you apply. Some banks offer a conditional approval--the bank can ask you to bring current loans up to date or prove you've paid an outstanding bill.
Price
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Bad-credit auto loans often require significant money down. Some lenders will require you put down half of the vehicle's value for approval. To help you with this requirement, try to find a vehicle that you can buy for less than the bank-determined value. This may prove difficult, but work with a dealer or search for one. You can use the National Automobile Dealers Association website (see Resources) to determine lending value, based on the retail value the website displays for a particular vehicle.
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References
Resources
- Photo Credit Taillight and spoiler on new white car image by steven Husk from Fotolia.com
