If you are new to the bad credit car loan process you need to be aware of how it differs from the traditional approach.
What we do
Here at Auto Credit Express, we know that if you have bad credit, chances are good that it's your first time buying a car with a bad credit car loan. Most of the questions that we get from customers who have gotten a regular car loan in the past and don't understand the special finance process is how they should go about purchasing a vehicle once they realize they won't qualify for a conventional auto loan. In this article, we will explain how the process works.
First the loan, then the car
When customers apply for a bad credit car loan, one of the first things that they notice is the way the dealer handles the process of finding a vehicle. Instead of beginning the process by walking the inventory and picking out a car, the special finance manager will first wait to hear back from the bank and then show you the cars in stock that fit the bank's program.
The lender determines your car budget
To begin with, lending guidelines for a bad credit auto loan are much stricter than for a traditional vehicle loan. In part, this is due to the fact that customers with bad credit are viewed by lenders as a higher risk than those customers with good credit.
When the finance department submits your credit application, the lender looks very closely at your income and expenses. In fact, the bank requires that you prove your income with pay stubs that show year to date income. You may also be required to prove time on the job with a W-2 from a prior tax year or a letter from your employer. Additional income, such as child support or disability, needs to be verified with court documents, determination letters and, possibly, bank statements.
Once the lender determines your income, it uses the information on the credit application, as well as estimates for other bills, to compute your total monthly debt. The lender will factor in such things as utility payments and car insurance to come up with a maximum monthly payment that it believes you can afford.
Once those calculations are completed and if you are approved, the bank will then place you in one of their tiered programs based on your credit score and credit history. The particular program that you qualify for will dictate the interest rate, loan term and down payment requirements. This information will then be sent to the dealer in the form of a payment call.
Vehicle selection process
Once the special finance department receives the payment call, the finance manager will determine which cars in their inventory fit the approval requirements based on model year, mileage and selling price. With most banks, the newer the car and the lower the mileage the longer the loan term allowed.
Vehicles that fit
Most customers that have not financed a car with a bad credit lender choose a car based on what they like – color, model or category. But this doesn't always work with subprime auto lending. For example, the particular vehicle in question could be a 5 year old pickup with 80,000 miles on the odometer. Even though this vehicle is clean and drives nicely, the interest will be higher due to its age, and a service contract (which you'll want, especially for a pickup) will also be more expensive. In addition, the term may also be shorter due to the mileage. In other words, it may look nice, but it also may not fit the payment call.
In most cases, rather than picking out the car yourself, the special finance manager will compile a list of vehicles in stock, based on the lenders criteria, which fall at or below the payment call.
As we see it
By understanding the buying process, you can avoid being disappointed by looking at the wrong kind of car. Remember that the object is to reestablish your car credit, not finance your dream car. To better understand the bad credit car loan process and for more answers to your questions, go to our web site at: www.autocreditexpress.com. There you will find calculators to help you determine your budget as well as a loan resource center that can help answer your questions. If you need additional assistance, our toll free number is listed at the bottom of every page.