Bad Credit No Credit Car Loans
by Steve Cypher on Wednesday, September 3rd, 2008When it comes to getting an auto loan with bad credit or no credit car loans, most lenders have a score card that they use to rate your creditworthiness and risk. Sometimes called a credit score or FICO score, this is not the only tool these lender use.
How lenders judge a borrower
Rarely will sub prime lenders rely on the credit bureau score alone when making their decision whether to approve or decline an auto loan application for bad credit no credit car loans. While the FICO score is the place that they start, these lenders always look beyond your credit score to try and find an underlying pattern of stability that will enable them to approve your application. Based on our experience at Auto Credit Express, here are a few examples of items that may be part of a subprime car lender’s score card:
Your Time in the Credit Bureau
Many bad credit no credit car loans lenders use the “In Bureau Date” as part of their score card. The longer a person has been in the bureau system, the better. It’s better, because this longevity means that you have a bigger credit file with which they can judge your payment history.
Your Previous High Credit
Finance companies may look at your previous credit high to determine the loan amount that they will approve. If you’ve paid well on a large loan in the past, this generally increases your chance of getting approved for a car loan.
Differences in Paying Installment vs. Revolving Credit
When it comes to auto loans, many bad credit no credit car loans lenders either disregard or pay less attention to revolving credit (credit cards) and play close attention to previous installment loans. The reasoning behind this is because a car loan is a type of installment loan.
Time at Your Current Employer
The longer a person has been with their current employer, the better. If you’ve been with the same employer for a number of years, it shows the lender that you have stable employment – an important factor in credit decisions.
Time at Your Current Residence
If a person moves around frequently, this tends to scare lenders. Consumers that move a lot are considered to be “Skip Hazards”. Quite simply, this means that if a lender has to repossess a vehicle they want to know where they can find it.
Your Debt to Income Ratio
Known as DTI, it’s not how much you earn, it how much that is left over after your bills that the lender focuses on. In most cases lenders prefer that all your debts, including the new car payment you are about to add, not exceed 40% to 50% of your gross monthly income (not your take home pay, but the total amount before taxes).
Your Payment to Income Ratio
Referred to as PTI, you should know that most lenders prefer to approve loans with monthly payments that are below 15% to 20% of a consumer’s gross monthly income.
Loan (amount) to Value (of the car)
Called LTV, it means that if you have bad credit, the more money you can contribute as a down payment, the better the loan will look to the bank. More money down decreases the Loan to Value of the loan and decreases the lenders risk. As an example, if you put $5,000 down on a $10,000 loan, the LTV is 50%.
Putting it all together
Not every bad credit no credit car loans auto lender uses all the items described above in their score card, but the score card exists to evaluate the risk of the auto loan. Once a lender decides to approve a loan, they use their score card to determinate the interest rate. The higher the perceived risk of the loan, the higher the rate will be.
For example, let’s say two people, John and Jane, applied for an auto loan, for the same $10,000 vehicle, and both had a credit (FICO) score of 580.
John is 24 and has been in the credit bureau for only two years. He has never had an installment loan, only credit cards. He has 6 months with his current employer and another 6 months with a previous employer, and he still lives at home with his family. His income is $1,800 per month. John is trying to buy the car with $500 down. With sales tax and registration fees he is asking to finance $10,300.
Jane is 32 and has been in the credit bureau for a total of twelve years. She has had three auto loans in which she paid okay. Two years ago she filed for bankruptcy due to unexpected medical bills. She has 8 years with her current employer and she has lived at the same address for 5 years. Her income is $3,500 per month. Jane has $2,500 cash as a down payment. With sales tax and registration fees, she is asking to finance $8,300.
The same lender is willing to approve both Jane and John. However, they view John’s loan as a riskier transaction than Jane’s. John is approved at a 22% interest rate while Jane is approved at a 14% rate.
The Bottom Line
When it comes to bad credit no credit car loans, your credit score is just the starting point. In addition to your FICO score, these lenders are looking for a reason to approve your loan, based on your job and residence stability, as well as your past payment history. If you are serious about getting your credit back on track, visit us at www.autocreditexpress.com. If you have any additional questions, feel free to contact us by phone or email us directly from our website.
