Have you ever heard of a high risk auto loan? What makes it risky? Are you putting yourself in danger when you get one? High risk auto loans don’t actually involve any risk on your part, but they can come with a big reward.
Why So Risky?
High risk car loans – also referred to as second chance auto loans – are loans for people who struggle with bad credit, or don’t have any credit at all. Typically, these are people whose FICO credit scores fall below 620.
Because not all lenders are willing to work with people whose credit is less than perfect, the “risk” is being taken by the lenders. These subprime lenders typically only work indirectly through special finance car dealerships, which means you won’t be able to directly apply for a loan with one of them. Instead, you need to visit a dealer that works with these lenders to start the financing process.
Going through a special finance dealership helps these lenders verify the information on loan applications. The dealer's finance manager gathers documentation that proves a borrower’s identity, residence, income, and more.
Alleviating the Risk
As a borrower, it’s up to you to show the lenders that you’re worth the risk. Before you apply for a loan, you need to know what the lenders see when they look at your credit reports. Plus, you need prepare for the dealership visit.
You can look at your own credit score for free at various websites such as Credit Karma, while you can request a free credit report from each of the three major credit reporting agencies (Equifax, Experian, TransUnion) every 12 months by visiting www.annualcreditreport.com. You can also research online what loans typically look like for people who are in similar credit situations. This allows you to be prepared, so a dishonest lender can’t determine your credit for you and give you an unreasonable deal.
Coming to the dealer prepared with the proper documentation is another good way build a lender’s confidence in you. Typically, subprime lenders require:
- Proof of income. Usually a minimum pre-tax earned income of $1,500 to $2,000 a month must be shown on your most recent computer-generated pay check stub. Check stubs must show year-to-date income and qualifying income can only come from one source of employment.
- Proof of residence. To prove you live where you list on your application, you need to bring in a recent utility bill in your name.
- A list of six to eight personal references. Complete with names, addresses (none at your address), and phone numbers.
- Proof of a working telephone. Only a contract cell phone or landline in your name serves as proof; prepaid cell phones don’t cut it.
- A valid driver’s license.
The specifics vary by lender, but having this information ready to show a finance manager goes a long way toward helping you prove to a lender that you’re a serious buyer who’s worth the risk.
Another thing that helps show a lender that you’re ready to invest in improving your credit with a second chance auto loan is a down payment. The minimum down payment amount required varies depending on your credit situation and lender, but you’ll typically need at least $1,000 or 10 percent of the car’s selling price, whichever is less.
Being prepared to pay tax, title, and license fees up front can also help, along with having a cosigner on deck in case a lender requires one for approval.
Begin Your Second Chance Now
If you’re ready to take a chance at a high risk auto loan, we’re ready to assist you. Even if you’ve been turned down in the past, Auto Credit Express wants to help. The special finance dealers in our nationwide network have lenders that look beyond your credit score, dig deeper, and get you the car loan your need.
You can take the first steps toward your next car loan right now. Simply fill out our easy online auto loan request form and we’ll get to work matching you with a local dealership that wants to get you into your next car. Don’t wait any longer – start now!