When the time has come to replace the family car, most consumers are not in a position to pay cash for a replacement. This is true even if the focus is on purchasing a good quality used vehicle. As a result, there is the need to consider the options for financing. When the buyer in question has less than perfect credit, finding the best financing deal presents a particular challenge.
Before you make the assumption that your credit rating is so low that obtaining a car loan is out of the question, it is important to consider all your options. While it is true that your credit may not be the best, there are lenders who are willing to work with people who have steady jobs that allow them to earn at least a minimum amount each calendar month. The goal is to find these lenders, compare the rates and terms related to the loans and then decide which one is in your best interests.
When it comes to car loans for bad credit, one of the first options to consider is dealer financing. An arrangement of this type can take on two different forms. In the case of smaller used car lots, the operators may in fact do their own in-house financing, an approach that is often referred to as a buy here pay here option. A dealer may also arrange special financing deals with a high risk lender and provide the means for interested parties to apply for those loans.
With the first approach to dealer financing, you will not be dealing with a finance company in any shape, form or fashion. An application for the car loan is submitted to the dealer, who then evaluates the information provided. Like any type of lender, the dealer will probably check the current status of your credit rating and also verify your employment. As part of the criteria, you will need to make a certain amount of money each month. The idea is to determine how much of a risk you represent and determine if the dealer is willing to take on that amount of risk in order to do business with you.
When the dealer does the financing in house, you will remit all payments directly to the dealer. Those payments must be submitted in accordance with the terms and conditions found in the purchase agreement. For example, you may be required to make a payment every week or two weeks rather than once a month. With this type of financial arrangement, the frequency of the payments is often based on how often you receive a paycheck from your employer.
The other form of dealer financing does involve working with a finance company or other lender who has agreed to evaluate loan applications received through the dealership. Used car dealers often work with high risk lenders who are willing to extend car loans to consumers who’ve gone through some rough economic times and damaged their credit ratings in the process. Typically, the focus will be more on your current circumstances and less on what has gone on in the past.
This type of financing is often a good option for anyone who experienced a job loss and got behind on his or her debts while searching for a new job. Assuming that you have managed to catch up those past due debts and have found a new job that pays a certain amount each month, there is a good chance that these high risk lenders will be willing to take a change on you. This is especially true if you can afford to apply a modest deposit on the car and drive the total cost of the financing down a little.
With both forms of dealer financing, be prepared to pay a rate of interest that is above the average. Since your credit is not the best in the world, lenders are taking on some additional risk in order to do business with you. Make sure the payments are made on time every time and you will establish excellent rapport with that lender. As part of the process, the lender will provide positive feedback to the credit reporting agencies. Over time, this will help to increase your overall credit rating and offset some of those older negative reports.
Independent Financing Options
If dealer financing does not seem to be an option, don’t despair. There is still a chance you can look around on your own and obtain a car loan from another lender. In this scenario, you will make the rounds to various finance and loan companies on your own and see if you meet their qualifications. While this approach is more time consuming, the potential of finding a high quality lender who can see past your old credit issues is worth every minute.
Begin your search by talking with locally owned banks and other financial institutions. Lenders of this type sometimes have more flexibility in evaluating loan applications based on local circumstances. For example, if you went through a job loss because the local plant shut down and have now secured a job in the next town over, a locally owned lender will see the value in helping you secure reliable transportation to and from that job. After all, the money you make will be spend locally and help to boost the local economy. Assuming you were doing well with your bills up to the time of the layoff and plant closure, there is a good chance you will receive the loan that you desire.
As with the dealer financing options, be prepared to pay a higher interest rate. Living with the rate and paying off the car loan on time will have a positive effect on your credit rating. The result is that the next time you need to buy a good quality used car, it will be easier to command better rates and terms.
Please Note: Depending on your credit history, you may be required to have a co-signer to get approved for a car loan.
Below we have listed some subprime lenders that accepts applications with bad credit, no credit, and past bankruptcy for both used and new car loans:
- 1-800-AutoYES — Can get approved even with the most severe credit problems. Past bankruptcy or foreclosure are ok
- Roadloans.com — They specialize in providing auto loans and refinancing to people with less than perfect credit. Car financing is available to buy new and used autos. They are a direct-to-consumer lender called «Santander Consumer USA Inc», not a loan broker. In my opinion they are the easiest source of financing to get approved for. To apply all you need to fill out is a simple 3-step application and they will provide you with a instant confirmation with no long waits for a decision on your car refinancing or loan application.
To get the best possible car loan with bad credit, contact multiple dealerships in your area and explain your situation