Credit issues will not necessarily prevent financing a car. However, this may require employing specific techniques to ensure you get a car loan. Auto lenders work with all types of borrowers; and regardless of whether you have bad credit or no credit history, financing options are available to you.
Credit Help
Credit issues can prevent applying for a car loan on your own. To help ensure that you are approved for a car loan, consider using a co-signer on the auto loan. This can be anyone you trust with a good credit history, perhaps a parent, sibling or spouse. As a co-signer, this individual signs the loan documentations with you, and they accept responsibility for the car loan if you were to default on the loan.
Down Payments
Down payments with credit issues can help in two ways. For starters, a down payment can compensate for a low credit score and help you get approved for a loan; with a down payment, the auto lender may offer a better interest rate on the auto loan. Interest rates affect the payment, and larger down payments help reduce the loan balance. Ideal down payments for a vehicle loan range from 20 to 25 percent of the sale price.
Income
Some auto lenders do not require proof of income if your credit score falls within a high range. But with a low credit score or credit issues, expect to bring copies of your most recent income statements. Earning enough income to afford a car can make up for a bad credit history. Retain copies of all documentations used to provide proof of income, such as bank statements and paycheck stubs. If self employed, show copies of your tax returns for the previous two years.
Comparison Shopping
Everyone financing a car should shop around for the best terms -- especially those with credit issues. The interest rate on car loans can vary from bank to bank; while one financial institution may quote a high rate on a bad credit auto, another bank may quote an interest rate that's a percentage point cheaper, saving borrowers money on their monthly payment. Plan to talk with at least three banks to get a free auto loan quote before making a final decision.
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