Consumer Car Buying Advice Blog

The truth about bad credit car loan interest rates and why there is no web site where you can read what your interest rate will be

As we see it

If you’re reading this, you may be one of a growing number of consumers who find themselves in the position of having to finance their next car with a bad credit auto loan. As part of our business at Auto Credit Express, we have helped thousands of our applicants raise their credit scores and reestablish their car credit by filling out our online bad credit auto loan application and financing a vehicle with car loans with bad credit through one of our affiliate dealers. By paying off the loan in a timely manner, these buyers have a good chance at starting a new chapter in their lives.

Our web site also features a resource section where you’ll find auto loan calculators and other information that you’ll need in order to come to a decision about the kind of loan you should choose (such as a tote the note loan versus car loans with bad credit). The reasoning behind this is simple: a bad decision at this time could result in a loan you can’t afford which could turn into in a repossession that could lower your credit scores even further.

The alternative, buying a vehicle from a tote the note car dealer, can be a problem because these dealers don’t report payments to any of the credit bureaus.

Bad credit car loan interest rates

If you are someone with bad credit who has been looking for some way to buy a car with a bad credit car loan, one of the first questions that you want answered is the interest rate you might be charged when you apply for auto loans for bad credit. Unfortunately, the answer is not as simple as it might seem.

If you have good credit (generally considered being a FICO score of 720 or more) or even mildly good credit (somewhere between a FICO score of 640 and 720), a bank or other lender will look at the amount of auto credit that you’ve had and, assuming it’s fairly recent, offer you an interest rate based primarily on your credit score. This is why shopping for an interest rate with good credit is usually so simple.

If your FICO scores fall below 640, however, most conventional lenders will not consider you for a car loan. Instead, you’ll need to apply for a bad credit car loan.

Looking beyond your FICO score

We like to say that lenders who offer auto loans for bad credit differ from conventional lenders in one important way: instead of looking for a way to turn down your loan application, they look for ways to approve it.

In order to do this, they need to look beyond your FICO scores and, using special scoring models, these lenders consider a number of other factors in determining the interest rate you qualify for.

Your ability to pay

The first thing they consider is ability. In other words, can you afford to make a car payment? In this instance, it’s not how much you make, but how much of your monthly income is left over once the bills are paid that these subprime lenders focus on. In most cases, bad credit lenders prefer that all of an applicant’s debts, including the proposed new car payment, not exceed 40% to 50% of their gross monthly income. The lower your debt-to-income ratio (DTI) is, the higher you will score.

Most of these lenders also prefer to approve loans with monthly payments that are below 15% to 20% of your gross monthly income. The lower this payment-to-income ratio (PTI) is, the higher you will score.

In addition, the larger the down payment, the better the deal looks to the lender. More money down decreases the loan to value ratio and reduces the lender’s risk. The lower the LTV of the loan, the higher you will score.

Your stability

How consistent is your source of income and how likely will it be that you will be employed during the entire term of the loan? How long have you lived at your current residence and how long have you used credit?

The answers to all these questions will influence whether or not your application is approved as well as the interest rate you will be assigned. Renters will score lower than homeowners. Most bad credit car loan lenders also look for at least one year with your current employer – with higher scores given for longer job tenure. If your job time is less than a year, added weight is given if you’ve remained in the same industry and have switched employers due to a growth in your industry experience.

Living in the same residence or in the same geographical area indicates that your financial situation has been stable for a longer period of time. People who move around are considered to be “skip hazards”. In other words, if a lender has to repossess a vehicle, they want to know where they can find it. The longer you’ve been at your current residence, the higher you will score.

Your willingness to pay

Looking beyond the DTI and PTI ratios of your loan application, these lenders will scrutinize your credit report to determine if you’ve paid your past bills in a timely fashion – especially any prior car loans. If there is some “slow pay” in your history, they then need to determine if it “situational” bad credit or “habitual” bad credit.

What does that mean? In other words, are the slow payments the result of one incident, such as a layoff or medical emergency, or have you never paid anyone on time? Individuals with situational bad credit will score better than those with habitual bad credit, due to the fact that situational credit applicants have exhibited good credit habits in the past.

Why there is no simple answer

Ability, stability and willingness to pay are all taken into account when determining your interest rate when applying for auto loans for bad credit. In addition, the type of vehicle you want to finance – including price, year and mileage – as well as the length of the loan will also influence the interest rate you’ll qualify for.

So as you can see, the answer to the question “what interest rate will I be charged?” is not nearly as simple as it might seem.

What we can do for you

At Auto Credit Express we have helped literally thousands of people with bad, blemished, bruised and tarnished credit buy cars and reestablish their credit at the same time. Our nationwide network of affiliate dealers specializes in bad credit car loans. Our web site, www.autocreditexpress.com, will help you determine how much car you can afford and, unlike many sites, our toll free number is listed on every page, in case you have any additional questions.

So why not begin the process right now by filling out our secure online bad credit car loan application to see what we can do for you.

Tags: auto credit, auto loan calculators, Bad Credit, bad credit interest rates, car credit, credit, credit bureau, credit score, fico, FICO score, interest rates, loan calculators, repossession, tote the note

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