Car Loans for People with Bad Credit

Car loans with bad credit do not mix very well. This article covers the strategies you can use to rise above bad credit.

One of the best ways for people with bad credit to obtain a car loan is to put forth a sizable down payment towards the purchase of the car. While individuals who have a b credit history are not required to put forth a down payment towards the purchase of a car, auto lenders tend to want additional security from individuals with a poor credit history.

Similar to purchasing a house, auto lenders will want individuals with a poor credit history to put forth at least a twenty percent down payment. The auto lenders view a down payment as proof the borrower has the ability to save money and they realize the individual will then have a lower auto payment than those people who do not put forth a down payment. If the borrower is looking for more competitive auto loan interest rates, they will need to put forth a much higher down payment.

Low Debt to Income Percentage

If an individual with poor credit has a low debt to income percentage, they will be much more likely to obtain an auto loan. A debt to income percentage is defined as an individual’s total monthly payments, including housing payments, auto payments, and education payments divided by their monthly gross income.

Most auto lenders will not lend to anyone who has a debt to income percentage in excess of 50%, because at this point most people won’t have any money left over after their loan payments to afford the rest of life’s costs including food, gas, and insurance. For individuals with a poor credit history, lenders will not want to lend to those whose debt to income percentage would be about 40%. Also, lenders tend to require borrower’s with poor credit to prove their current debt to income percentage, while those with higher credit scores may not be required to do so.

If an individual with poor credit has a high debt to income percentage and they need an auto loan, they should take steps to lower their monthly bills prior to applying for a loan. To lower their monthly expenses, an individual can find an apartment with lower rent or refinance a loan to lower their payment.

Co-Signor

A great way for an individual with poor credit to be approved for an auto loan is to get a co-signor. A co-signor is an individual who will have to promise that they will make any auto loan payments due in the event that the borrower does not make the payments. If the borrower with poor credit does decide to have a co-signor, they should be sure the co-signor has good credit. The best option for finding a co-signor is to ask a friend or family member.

Besides being approved for a loan, the bests benefit of obtaining a co-signor with good credit is that the lender will consider the application a low risk investment, and therefore will offer a lower interest rate and won’t require as large of a down payment or as low of a debt to income percentage. This can save the borrower a lot of up front hassle in the application process and save the borrower thousands of dollars over the course of the loan.

In conclusion, obtaining an auto loan with poor credit can be quite difficult, but there are many ways an individual with poor credit can increase their ability of obtaining an auto loan. To improve their odds of obtaining an auto loan a person with poor credit should give an adequate amount of employment and salary verification, put forth a large down payment, have a low debt to income percentage, or obtain a co-signor.

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Article Tags: Down Payment, Auto Lenders, Poor Credit, Auto Loan, Income Percentage,, Income Percentage

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