Applying for car loans with bad credit is much easier than it might seem but before you do you should be aware of a few of the basic requirements needed in order to qualify
How to apply for a bad credit car loan
If you are someone with bad credit who has been looking for some way to buy a vehicle other than a neighborhood buy here pay here dealer, then you should know that web sites such as ours at www.autocreditexpress.com have helped thousands of people just like you find a dealer in their area that can get them financed. In addition to being able to drive either a new or nearly-new used car, applicants who get approved are also able to elevate their credit scores while reestablishing their auto credit. All this can happen simply by filling out our online bad credit auto loan application and getting financed with a second chance auto loan.
But not all of these loan application sites are helpful. Only the most useful will provide their applicants with the information they need in order to make an educated decision about the type of loan they should choose (such as a tote the note loan versus a bad credit auto loan). But without this information, applicants could be led into making a bad decision. If that happens, it could result in an unaffordable loan and possibly result in a repossession that could lower their credit scores even further.
The first step
It also means understanding why it is usually necessary for bad credit customers go through the process of first financing at least one vehicle with a bad credit auto loan in order to once again qualify for competitive interest rates on their next vehicle loan.
So prior to beginning the application process, you need to do a little homework and review your own finances. Here are some steps that we recommend you take:
Know where you stand
The first step in the process is to pay for your FICO score and order copies of your credit reports. Most subprime 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). And while bad credit lenders also work with near-prime customers, credit unions, captive finance companies and some banks also dabble in this market from time to time as well. With the current lending market on the rebound, you may find a few more of these mainstream lenders willing to work with you.
All lenders, including those who deal solely with bad credit customers, also look at how long you've been “in the bureau” – meaning how far back your credit history goes. As with everything else, credit decisions can be very subjective and are based on your own individual circumstances. That being said, having a history of at least 3 years in the bureau is usually considered as a minimum, with many lenders requiring that you have at least a 5 year credit history in order to qualify for a loan. A big plus: having at least one previous auto loan showing on your credit report.
Minimum income requirements for applicants are all across the board and vary widely with each lender. To qualify for a bad credit car loan, $1,500 per month gross income (before taxes) is usually considered to be the minimum acceptable amount, but keep in mind that even this income level will limit the number of lenders that will consider your application (as well as the number and types of vehicles you will qualify for). As a rule of thumb, the higher your monthly gross income, the larger the available selection of lenders will be when it comes time for the finance manager to submit your credit application.
In addition to income, a lender will also look at your other monthly obligations in determining your creditworthiness. The result of this computation is known as your debt to income ratio, and it tells lenders how much available income you'll have once your bills have been paid. This is the income you'll need in order to finance a vehicle plus the additional costs of car insurance and fuel.
In most instances, bad credit lenders prefer that all an applicant's debts, including the new car payment, not exceed 40% to 50% of their gross monthly income. A majority of lenders also prefer to approve car loans with a monthly payment that's below 15% (20% at the most) of a consumer's gross monthly income.
Choosing a vehicle
Most bad credit lenders will not allow you to have more than one vehicle loan in your name. If you are currently financing a vehicle, you will need to either pay it off or trade it in. Lenders also want to see that you are buying a car that you can afford – so put off buying your “dream car” until after you've reestablished your credit.
Few things give lenders a more positive sign than large down payments (up to 20%). Customers that have that kind of equity in their vehicles have a tendency to want to hold onto them and not miss payments. Many lenders will also consider rebates – the larger the better – as at least a portion of the down payment. But even with rebates, nothing takes the place of cash from the borrower.
• Job time – just like a down payment, the longer you've been on the job, the better it looks to most bad credit lenders. A short time on the job, however, can be offset by other factors such as the amount of income, employment in the same field, and/or as stability in other areas, such as the length of time you've resided in your home ad even home ownership.
• Bankruptcy – most bankruptcies need to be discharged. Only a couple of lenders will consider an applicant that is currently in a Chapter 13. Even then, an order to incur additional debt must be received from the court before the lender will even consider reviewing your application.
• Accuracy – you should be prepared to back up anything you state on the application with documented proof. Now is not the time to begin a career in “creative writing”.
Where we fit in
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 national network of affiliate dealers specializes in bad credit car loans. Do you need to do more research? Our web site will help you determine how much car you can afford and, unlike other sites, our toll free number is listed on every page in case you have any additional questions.
So if you are serious about getting your credit back on track, you can begin the process right now by filling out our secure online bad credit car loan application.