When you have bad credit and you need to buy a car in Los Angeles, it can be difficult to know where to begin, but we can help. Just follow these four simple steps to get on your way to your next auto loan.
Step 1: Check Your Credit
The first step to any car buying situation should be to know where your credit stands. Knowing your credit means getting your credit reports and credit score. You can typically get both for free; get your reports by visiting www.annualcreditreport.com, and your credit score through your bank, credit union, or credit card provider.
Once you know where your credit stands, you can determine whether to look for financing through a direct lender – such as a bank, credit union, or online lender – or an indirect lender through a dealership.
With bad credit, you should always try to get pre-approved with your bank or credit union first. However, you should also prepare to find a lender that can work with bad credit borrowers, as not every one can.
Lenders that specialize in working with bad credit borrowers are called subprime lenders, and they usually only offer loans through special finance dealers in Los Angeles.
Step 2: Know Your Budget
The second step to getting an auto loan is to know your budget. This way, you won't get talked into financing more than you can afford.
Lenders, especially those that work with bad credit in the City of Angels, do a number of calculations to “debt out” a consumer. These calculations let them know how much of your income is available, how much is being used for your current bills, and how much you can ideally afford for a car loan payment.
You can do these calculations yourself when preparing your budget. All you have to do is calculate your debt to income (DTI) and payment to income (PTI) ratios.
To find your DTI ratio, add up all your existing monthly bills and divide the total by your pre-tax monthly income. Bad credit lenders generally cap your DTI ratio at 45% to 50% to ensure you have enough income available to take on an auto loan.
To see how much of an auto loan payment you can afford in LA, calculate your PTI ratio. Subprime lenders usually cap your PTI at 15% to 20%, making that your maximum monthly payment range. To find yours, just take your pre-tax monthly income and multiply it by 0.15 and then by 0.20.
Remember, this is a maximum range, and you can always aim lower to make more room in your budget.
Step 3: Prepare Your Documents
As a bad credit borrower in Los Angeles, lenders need to see proof that you have the ability, stability, and willingness to take on an auto loan. In order to help, lenders require a number of qualifications in addition to your credit.
When you know you need to visit a special finance dealership, it’s best to be prepared ahead of time. Though the requirements vary by lender, you typically must provide:
- Proof of income
- Proof of residency
- Proof of a working telephone
- A list of personal references
- A valid driver’s license
- A down payment
Step 4: Find a Dealership in Los Angeles
As Angelenos know better than most, it can be hard to spend time driving all over the area in search of something. So, when it comes to finding the right dealer to help with your next vehicle, you don’t want to waste any more time or money than necessary.
At Auto Credit Express, we want to streamline your search for a car loan by connecting you to a local LA dealership that has the lending resources you need. We work with a large network of special finance dealers all around Los Angeles, California, and the rest of the country.
We can help you find a dealership fast. Fill out our free, no-obligation auto loan request form, and we’ll get to work matching you with a dealer near you. Don’t delay, get the process started right now!