Before You Sign for a High Risk Car Loanby Steve Cypher on Friday, January 25th, 2013
Here at Auto Credit Express we believe that car buyers who have experienced credit problems in the past need to face the fact that they will likely need to make a number of difficult choices prior to signing on the dotted line. But the fact is that these choices can mean the difference between successfully completing their auto loans and further damaging their credit.
We don’t mention this topic lightly as it’s based on over two decades of experience helping car buyers with credit issues find those new car dealers that can offer them their best opportunities for approved car loans.
Auto loan troubles
In some cases the consumers we come into contact with have experienced issues with previous car loans that include signing a contracting they didn’t understand for a vehicle they couldn’t afford.
What we have learned from their experiences is that by understanding the process and following some simple guidelines, they could’ve avoided many of the situations they currently find themselves in now.
Credit reports and FICO scores
Even before you start the application process, you should know what’s contained in your credit reports (you’re entitled to one at no charge per year from each of the three credit bureaus) and at least one of your credit scores (you’ll have to pay for the score).
With established credit and FICO scores over 660 most buyers should qualify for a conventional car loan at prime or near prime interest rates with a captive finance company, bank or credit union.
Consumers with scores that fall below 660 will typically be looking at either a subprime auto loan or, in some cases if their credit is really bad, possibly even a loan through a buy here pay here car dealer (although this article won’t be covering BHPH car loans).
To sum it up, knowing your credit scores and the information contained in your credit reports is important for a couple of reasons:
• The conventional and bad credit auto loan processes are different so you should know what to prepare for
• Applying for a conventional car loan with poor credit scores will probably result in a credit denial – wasting time for you, the lender and the car dealer (if you applied through a dealership that doesn’t have a special finance department)
The next step is to determine a car budget. In addition to the car payment, you’ll want to include the cost of gas as well as full coverage car insurance. By comparing this figure to your income after expenses (for assistance you can use the loan calculators on sites such as ours) you can determine your debt to income (DTI) and payment to income (PTI) ratios. All lenders use these ratios but it’s especially important to those who lend to people with credit issues.
Do your research
Next, research those vehicles in the price range you budget for and you’re interested in by visiting web sites like consumerreports.org. This can help you determine which models are the most dependable to save you money in operating expenses.
Dealer backend products
Backend products are those offered in dealership finance departments. Of these, gap insurance makes sense if you have a loan term over 48 months and/or have put less than 20 percent down.
A reasonably-priced car service contract also makes sense if you’re buying a used car or financing a new vehicle beyond the new car warranty period. It’s also a good idea to check a model’s repair history (again, Consumer Reports is a good source for this) as well as price shop the cost of a service contract beforehand.
Buyers, however, should stay away from window etching, rust-proofing and paint protection. All three add little or nothing of value. If necessary you can etch windows and seal the paint yourself for a fraction of the cost, while most cars come with anywhere from a seven to ten year rust perforation warranty from the manufacturer.
Research the dealer
Check with friends, co-workers and the Better Business Bureau before visiting the dealer to determine its reputation for fairness in dealing with new and used car customers. Unfortunately, in many cases consumers with credit problems have a difficult time finding a franchised new car dealer willing to help them – but more on that in a moment.
As we see it
Before submitting a loan application, know your credit scores and the information in your credit reports. If your credit is less than perfect you should also check your income and expenses to be sure you meet basic lender requirements.
Finally, if your credit is less than perfect, you probably have more options than you realize. Before visiting a tote the note dealer check out Auto Credit Express which matches applicants that have experienced auto credit issues with dealers that can offer them their best opportunities for car loan approvals.
So if you’re ready to establish your car credit, you can begin now by filling out our online car loans application.