Buying a car can seem like a daunting task when you have bad credit. Luckily, when you live in a city as big as LA, there are more than a few options to turn to in order to finance the vehicle you need.
Why Bad Credit Car Buying is Different
Bad credit car buying differs from traditional auto financing because the lenders that work with people in imperfect credit situations are able to look beyond the standard methods to get you a car loan. Traditional lenders rely on your credit score and base their decision on that. If your credit is too low, you're out before you even get a chance to explain.
Bad credit auto financing, on the other hand, is handled by subprime lenders that take the time to look beyond your credit score, and base an approval on factors such as income, residency, and past credit behavior. These subprime lenders look to see if your credit hang-ups are a habit, or just a bump in the road. They also let you prove through documentation that you're ready to take on the financing you need.
Proving You Can Take on Auto Financing
When you're working with a subprime lender in The City of Angels, you need to meet their requirements in order to take out a bad credit car loan. The specifics vary, but all subprime lenders work with the same basic guidelines, and typically ask that you provide:
- Proof of income – Subprime lenders usually ask a borrower to prove an income of $1,500 to $2,000 a month before taxes. This is done by providing a computer-generated check stub showing year-to-date income from a single employer.
- Proof of residency – Lenders typically ask you to provide a current utility bill in your name, at the address listed on your application.
- Proof of a working telephone – Lenders generally need you to have a landline or contract cell phone in your name at the address listed on the application. Prepaid cell phones aren't accepted.
- Down payment – Usually, subprime lenders require a minimum of $1,000 or 10 percent of the vehicle's selling price, whichever is less.
Lenders also usually ask for additional documents like a valid driver's license or state ID, and a list of six to eight personal references. Lenders that serve the Los Angeles area may have other qualifications that must be met, but this is going to vary depending on the specific lender you're working with.
Other Tips for Bad Credit Financing in LA
Knowing what to bring to the dealership is just the beginning. There are a few other steps you need to take in order to get a bad credit car loan in Los Angeles. Remember, fortune favors the prepared when it comes to buying a vehicle – especially if you're struggling with credit issues.
Three things you should do before diving into any auto loan:
- Know your credit – This means knowing your credit score and what's on your credit reports. Lenders, both subprime and traditional, are going to look at both first. If you don't know what they're looking at, you can't know if they're giving you a fair deal, or if your credit actually is what they're telling you it is. Your credit reports can be obtained from www.annualcreditreport.com, where you're entitled to a free copy from each of the three national credit bureaus – TransUnion, Experian, and Equifax – every 12 months. You can get your credit scores for a small fee at the same time, or get them for free through your banking institution or credit card company if they provide access.
- Make a budget – Knowing what you can afford is a big part of a successful auto loan. Make sure you're looking at the overall cost of financing a car, not just focusing on the selling price or monthly payment. Focusing on the monthly payment alone can cause you to stretch a term too long, which ends up driving up your overall vehicle cost due to interest charges. On the other hand, if you only focus on the end price, you might not be able to keep up with the payments, which could lead to repossession and further bad credit. Lenders are going to look at your payment to income (PTI) and debt to income (DTI) ratios to make sure you can afford to take out an auto loan. You can learn how to calculate these yourself, just make sure you keep your PTI between 15 and 20 percent of your income, and that your DTI, including a car and insurance payment, isn't above 50 percent of your monthly income.
- Do your homework – Research is key to finding the best deal you can on the right vehicle for you. Make sure you look up customer reviews for any car you're thinking of purchasing, and shop around for the best interest rate. Keep in mind that with poor credit, your interest rate is going to be higher than someone's with good credit. Even so, you don't need to be taken for a ride. Research the typical rates that people with similar credit situations tend to get so you know if a lender is offering you a fair deal.
Getting the Right Lender
Now that you know how to prepare yourself for a bad credit auto loan, it's time to make sure you get the right lender. Not ever lender can work with bad credit, and not every dealer works with lenders that can. So, rather than driving from Van Nuys to South Los Angeles trying to find a lender that can deal with your credit situation, let us help instead.
At Auto Credit Express, we work with a network of subprime dealerships all around the Los Angeles area and we want to get you connected with a dealer near you. Simply fill out our easy car loan request form, and we'll get the process started!