You can get approved for an auto loan even if you have less than perfect credit. Subprime car loans are readily available, but the lenders who approve them look very closely at many aspects of an applicant's finances. They do so to get an idea of the amount of risk that they would need to assume if they were to approve a particular applicant. And a big part of their risk assessment has to do with the loan to value ratio.
A Look into the Minds of Subprime Lenders
At Auto Credit Express, we have been helping consumers with damaged credit find auto financing for close to two decades. Our experience has given us an inside look at how subprime lenders evaluate an applicant.
Subprime lenders are able to approve consumers with poor credit scores because they use special scoring models that take many factors into account. These factors generally concern an applicant's ability, stability and willingness to pay.
If you have bad credit and are looking to get approved for an auto loan, expect the lender to evaluate your: income, monthly bills, down payment amount, job stability, residence stability, auto loan history, credit situation, and the loan to value ratio of the particular vehicle you want to finance.
The Loan to Value Ratio
As it pertains to auto financing, the loan to value (LTV) ratio is the amount financed relative to the value of the vehicle the buyer wants to finance. To determine the value of vehicles, lenders typically use three sources: NADA Guides, Kelley Blue Book, or Black Book.
Subprime lenders are looking for low loan to value ratios. When the value of the vehicle is more than the loan amount, then a lender assumes less risk in approving the loan. But when the opposite is true, the lender is generally less likely to approve you.
Reducing Risk: Lowering Your LTV
It's natural to be curious about the specifics of a purchase as large as a car. Consumers want to know every detail - how much they'll be approved for, their interest rate, what kind of car they can get, etc.
We've heard all of these concerns before, and we wish that we could be more helpful and informative. The problem is, it's very hard to determine specifics because subprime lending happens on a case by case basis.
Every car dealership that deals in special financing has multiple lending partners. And each lending partner will have their own programs, their own requirements, and their own evaluation process. Structuring a loan that works for the consumer, dealer, and lender at the same time is complicated stuff.
All of these moving parts make it impossible for us to speculate about specifics. What we can tell you is that anything you can do to reduce the risk a lender has to assume will help your chances of getting approved.
A great way to reduce risk is to lower the loan to value ratio. Here's a few ways that can be accomplished:
- Research Car Prices
You can keep the LTV ratio in check by choosing a car with a selling price that compares well to its book value. This means that you need to do your research before heading to the dealership. Consult the three major valuation guides (Kelley Blue Book, NADA Guides, and Black Book) to help you make sure that you are paying a fair price.
- Provide a Down Payment
Oftentimes, subprime lenders will require a down payment in the form of cash, trade equity, or a combination of the two in order to approve a loan. The general industry standard is $1,000 or 10% of the selling price, whichever is less. However, that is the minimum amount and, having more than what is required will always work in your favor. A down payment will lower lender risk by reducing the amount you need to finance and increasing your equity stake in the vehicle.
- Have Money to Cover Tax, Title and License Fees
Having cash to cover the tax, title and license fees that come with any car deal is ideal for consumers with less than perfect credit. Why? If you don't, the fees will have to be rolled into the loan amount, which will increase your LTV ratio. Lenders have to assume more risk when they finance a loan that is greater than the value of the vehicle.
These three actions can help you reduce the LTV ratio. The lower the LTV, the less risky the loan is perceived to be in the eyes of the lender. And the lower the risk, the better your chances of getting an approval.
Are You Ready To Get Approved?
Auto Credit Express can help you get connected to the dealership in your area that stands to give you your best shot at getting approved for an auto loan. Even if you have less than perfect credit, we will work tirelessly to help you get the car you need.
Our service is completely free, and the sooner you apply, the sooner we can get to work for you. Complete our secure and obligation-free online application to get started today.