Financing A Car With Bad Credit

To begin, you should know your credit score. Most bad credit lenders deal with credit scores in the 500 to 640 range. Anything above 640 is in the near-prime range (prime starts at about 720). While bad credit lenders also work with near-prime customers, credit unions, captive finance companies and some banks also loan in this segment and may be able to help you in financing a car with bad credit.

Secondly, you can't be considered a credit "ghost". Lenders will look at how long you've been using credit. Although credit decisions can be very subjective, having a credit history of at least 3 years is usually considered to be a minimum. A big plus is having at least one previous auto loan appearing in your credit report especially if you're financing a car with bad credit.

Minimum income requirements vary by lender, but a $1,500 monthly gross income is usually considered to be the minimum for financing a car with bad credit. The higher your monthly gross income, the larger your available selection of lenders and vehicles will be.

Lenders will also calculate your monthly debts, compare this to your income and use this debt to income ratio to determine if you'll qualify for a bad credit auto loan and how much available income you'll have for your car and insurance payments.

If you're financing a car with bad credit, lenders prefer that your debts, including a car payment, not exceed 40% to 50% of your monthly income before taxes. Typical lenders also prefer to approve car loans that result in a monthly payment that's below 15% to 20% of this income.

Bad credit lenders also like to see down payments, either in cash or in real trade equity. Customers with big down payments usually keep up with their monthly payments. A large down payment also means there's less chance of repossession.

Most bad credit lenders will not allow you to have more than one vehicle loan at a time. If you are currently financing a car, you'll need to either pay it off or trade it in. Other qualifications include:

• Job time – The longer the better. Short job time can be offset by other factors such as higher income, employment in the same field, and/or stability in other areas, such as residence time and home ownership.
• Bankruptcy – Bad credit lenders will usually not finance open or multiple bankruptcies. Only a few will consider an applicant financing a car with bad credit that is currently in an open Chapter 13 – which requires an order to incur additional debt before the lender will review your application.
• Accuracy – Be prepared to back up anything on the application with documentation.

Applying for financing a car with bad credit is not the time to begin a career in creative writing.