There are many options out there for obtaining second chance auto financing for people with bad credit. However, what should be understood is that you most likely will need to make a large down payment, pay high interest rates, or both. The following is an exploration into how to get auto financing for buyers with bad credit.
Review and Repair Your Credit Report
Before all else, you should get copies of your credit report from all three major agencies. These are Experian, Equifax, and TransUnion. There is a federal law that those companies must give you one free credit report per year.
When you review your credit reports, be on the lookout for errors. You can request a removal of the incorrect information. By doing this, you both become aware of your credit status and will be able to increase your credit score.
Make All of Your Payments on Time
While you are working on cleaning up your credit reports, you should make sure that you pay all of your bills on time. A long history of making on-time payments is key to obtaining second chance bad credit auto financing.
Apply with Your Bank or Credit Union
After you have made every attempt to clean up your credit, you should first pursue second chance financing with your bank, credit union, or other financial institutions that you do business with. The reason that these institutions should be approached first is that they have a complete knowledge of your finances, your history of bill payment, and the stability of your income. Customers with bad credit can many times obtain financing by demonstrating their current high level of fiscal responsibility.
Apply with Sub-prime Lenders
If you are not able to get financing through your home financial institutions, then the next step is to approach a second chance sub-prime lender. This is a type of financial institution that works with consumers with bad credit. Since a borrower with bad credit is a greater financial risk, these institutions lend at a much higher interest rate. Also, the lender may request that you make a down payment of 20% or more to reduce their risk.
Important Note from the Author – With myself in a bad credit situation in August of 2015 with a credit score of 560, I applied everywhere for a car loan on-line and was rejected by every lender except Santander Consumer USA. I was approved for a $16,000 loan but I had to have a deposit of $1500 and it came with a APR of 25%. Depending on your credit, income and current debt obligations – your interest, down payment requirements and loan amount maybe different.
Apply with a Car Dealer
You can try applying with the car dealer that you are purchasing from. The dealer will most likely want to take a profit on the loan, so the financing will be more expensive than with your financial institution or a sub-prime lender.
One car dealer call Drivetime is one of the largest automobile dealers that can help people with credit issues purchase a great car, truck or SUV. They are headquartered in Phoenix, Arizona, and they operate over 135 dealerships that are located across the nation. With thousands of automobiles in stock to choose from, they personally finance for these vehicles for you so you don’t need to be worried about being rejected from a outside lender.
Try to Find Someone to Co-sign
If you are sure that you will have no problem making all of your payments on time, then you can ask a friend or relative to co-sign the loan. This may give the financial institution more confidence in granting the loan. In turn, this may help lower interest rates and down payments.
There is a risk involved if you miss payments. You will end up damaging your co-signer’s credit rating in addition to your own. Also, if you stop paying the bills, your co-signer will bear the brunt of the total amount. For this reason, you should only use this option if you are absolutely sure that you can consistently pay the bills.
Buy from a Used Car Dealership
If you have no other options, you can buy from a used car dealer. They will finance just about anyone. However, they also will sell you a high-mileage vehicle in poor condition for a price that is far above market value. They also will charge you an exorbitant interest rate. Many times, the payments are due weekly. If you are a little bit late, then your car might be repossessed.
Peer-to-Peer Lending Services
After you have tried your home financial institution or credit union, your next stop could be going to a peer-to-peer lending site. They match borrowers with lenders. However, these sites typically charge higher interest rates and don’t have any personal service. Lending Club is just such a site.
If you do your research right, you can find many second chance car loans to purchase a car with bad credit. You will be subject, however, to lenders that charge high interest rates and demand significant down payments. What should be remembered is that every time you make a credit inquiry it is recorded on your credit history.