For almost every American, owning a vehicle is a hugely important thing. Whether requiring one for work or family reasons, or to simply have one to get around easily, an automobile is a necessity in modern life. But buying a car can be a challenge for bad credit borrowers. Thankfully, there are ways to get approval on an auto loan with bad credit.
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The reality is that having low credit scores is not the chief concern for lenders. Far more important are the issues of affordability, employment status and having all of the necessary documentation in order. But securing loan approval is made easier if the applicant has everything ready before submitting their application.
Taking the time to organize things is well worth the effort, which is why we have put together a list of things to check on during the 3 different stages of the auto loan application process. From budgeting to filling out the application form, there are ways to increase the chances of getting the green light.
Before Submitting Your Application
There are a number of things that every applicant should do before submitting an application for an auto loan with bad credit. The first is to understand the state of their finances, and check their credit score. The reason is that the score will affect the interest rate to be charged.
It is possible to get an official copy of your credit report from one of the credit agencies. This details your credit history, revealing the score and how the score was calculated. But the score may be inaccurate, in which case a review can be ordered. Improving your score can mean better loan terms, as well as a better chance of securing loan approval.
Once this is done, set your budget for an auto loan that is affordable. Applying for a loan that is out of financial reach is pointless. Remember, the lenders use the debt-to-income ratio, which stipulates no more than 40% of excess income can be used for a repayments. So, apply that to your calculations.
Completing Your Application
There are a few inclusions in an application that can make a huge difference when seeking an auto loan with bad credit. Probably the key inclusion, however, is a cosigner - someone who is willing to act as a guarantor on the loan.
The advantage of a cosigner is that the risk factor is reduced dramatically. This is because repayments are effectively guaranteed to be made, with the cosigner promising to pay in the event the borrower is unable to. And with the risk gone, securing loan approval becomes little more than a formality.
Other key inclusions are the required documents, all of which should be in good order before submitting your auto loan application. These include employment certificates that prove your employment status, and bank statements and tax returns that confirm your income. Recent utility bills may also be needed to confirm your current address.
After Submitting Your Application
It is a good idea to apply for an auto loan with bad credit to more than one lender, and those that approve your application will offer certain terms. Be sure to read the terms carefully before deciding which one is the right one.
Look at things like interest rate, the size of the down payment (which is a recommendation, never a requirement), and the loan term etc. Never be afraid to negotiate with a lender either. Perhaps, a longer repayment term suits best since it lowers the size of the monthly repayments.
Remember, securing loan approval is important, but there are options that place the power in your hands. So, do not settle for the first auto loan offer that comes your way.