How to Purchase a Used Car With Poor Credit

Auto financing is one of the easier loans to get with bad credit. This is because car loans are secured debt, debt where the bank can seize something you own (the car) if you default on payments. You won't necessarily get the best interest rates or be able to afford the nicest car, but getting financing shouldn't be a problem.

Instructions

1

Look at your personal finances, including major regular expenses such as rent and your usual monthly income. Decide on a monthly car payment of no more than one quarter your income after expenses.

2

Check your credit history. Each of the three major credit bureaus will provide you with one free copy of your credit report every year. You can contact them directly or use one of several inexpensive Internet credit check services.

3

Save a down payment of at least $500, unless you plan to trade in a car worth that much or more.

4

Resolve any major outstanding actions on your credit report. Don't worry too much about late payments, but do pay off any collections actions. Get a letter stating you've done so each time you send a check.

5

Go to a car dealer near the end of the month, when quotas and bonus structures make the sales staff hungry. Also consider any "sales events". The sales team is often competing for an extra bonus or is otherwise motivated to help you buy a car.

6

Choose a car that will fit the budget you've decided on. Negotiate a deal with the sales staff, factoring in your down payment. Don't buy too inexpensive a car: cars worth too little don't represent enough interest income to justify the risk of an auto loan.

7

Let the sales staff do the heavy lifting when it comes to getting you approved for a loan. If they can't find a lender, then they don't get paid for the sale.

8

Arrange for a co-signer if your credit is too bad to get the loan on your own.

9

Sign documents on the loan and drive away in your new car. Make your payments on time every month to build credit.

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What Is a Guaranteed Auto Loan?

Some people consider having a car a necessity. If you have a poor credit history, you may not be able to buy any car you want. However, many dealers offer guaranteed auto loans. Understanding how these loans work is essential before committing yourself to anything.

Guaranteed Auto Loans

A guaranteed auto loan is extended by an auto dealer to its customers. In most cases, the auto dealer deals with used cars. With this type of loan, you can get approved for financing, regardless of your credit history. You could have a recent bankruptcy, foreclosure or some other kind of blemish on your credit report and still get approved. This allows practically anyone to be approved for a car loan.

Requirements

With a guaranteed auto loan, the dealer will not look at your credit history. While your credit may not be important, the dealer will want to see that you have an adequate amount of income to make your payments. Most of these dealers require you to make a weekly payment, and the dealer will require a certain amount of income, depending on how big of a loan you are taking out. You have to prove that you are employed and make a certain amount of money to qualify.

How These Work

The idea of guaranteeing an auto loan to anyone might seem like it does not make much business sense. In reality, car dealers know that a certain number of these loans will go into default and they will have to repossess the cars. To compensate for these few bad customers, the dealer charges everyone a much higher interest rate.

Down Payment

Many guaranteed auto loans also come with a significant down payment requirement. By requiring a down payment, the lender can lower the risk associated with default. If customers have a large amount of cash in a car, they are much less likely to stop making payments and lose it. The lender might require you to come up with at least 20 percent before you can qualify for a loan.

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What Happens If I Refinance My Vehicle?

The process for refinancing an auto loan is similar to taking out the original loan. A lender will check the borrower's credit rating and income, just as lenders do when borrowers take out other loans. You should consider whether refinancing an auto loan is worth the effort by determining whether you would gain any significant benefits from the refinanced loan.

Process

People who refinance their cars are taking on a new loan. The lender who approved the refinancing will pay off the balance on the old loan and issue a new one which includes the payoff amount for the old loan, along with any refinancing fees. The refinanced loan may come from the company that issued the original loan, or it can come from a different company. You may want to refinance a loan to lower the monthly payments on your vehicle. You can get lower payments if the new loan has a lower interest rate, or if the lender extends the amount of time you have to repay the loan.

Lower Rates

You may be able to get a lower interest rate on a refinanced auto loan if your credit score has improved since you took out the original loan. You also may be able to get a lower rate if interest rates in the auto industry have dropped since you took out the original loan. Yet, the Lease Guide auto website notes that the interest rate on a refinanced loan may be higher if an auto dealer gave you a special low rate to seal the deal when you bought your vehicle. In such cases, refinancing won't save you any money over the life of the loan.

Loan Extension

It costs borrowers more to extend the amount of time they have to repay an auto loan through refinancing, because they pay interest on the loan for a longer period. However, people who are struggling to make their car payments may need to assume the added costs to get more affordable payments. Extending the loan term usually lowers monthly payment amounts. Nonetheless, the value of the vehicle is important for people who sell or trade in their vehicles shortly after extending their loan period, because they may be "upside-down" in the loan.

Upside-Down Loans

Borrowers are upside-down in an auto loan when the balance owed on a loan exceeds the value of the vehicle. Auto values generally drop quickly after a vehicle is purchased, so extending a loan period through refinancing often leaves the borrower owing more on a vehicle than it's worth. An upside-down loan isn't an issue for people who intend to keep a car and pay off whatever they owe, regardless of its value. However, borrowers who try to sell their vehicles or trade them in at a dealership usually come up short in an upside-down loan, because the sale or trade-in offer is often less than the loan balance. In such cases, borrowers need to pay off the remaining balance themselves.

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How to Transfer a Car Loan to Another Person

You can't simply transfer your loan to another person. Instead, the person who wants to take over your car payments must either apply for your loan's payoff amount alone or with you as a cosigner if he can't obtain approval. Lenders base loan interest rates and terms on individual credit history, income and debt. Also, most states require that a new owner pay taxes on a vehicle purchase. The person to whom you want to transfer your car payments may apply to your current lender or to another lender of his choice. You must satisfy your current car loan to transfer vehicle ownership.

Instructions

1

Call your lender to obtain your loan's payoff amount. Ask for the loan's per-diem, which is the cost of interest added daily to your payoff and are charges you must pay to transfer ownership. Unless you pay a zero-percent interest rate, expect your payoff amount to change every day.

2

Ask your lender to describe its payoff process. Find out whether you have to go to your lender to make your payment or whether you must submit funds by mail. To have your buyer pay your lender directly, note your account with a lending representative to allow your buyer to obtain payoff information and make payment.

3

Provide your buyer with the loan's payoff amount. Your buyer can apply to the same lender to simplify the transfer process or apply to a lender of his choice. Provide the buyer with your lender's phone number, your account number and your vehicle information, such as year, make, model and vehicle identification number (VIN).

4

Wait for your buyer to complete her payment to your lender if she applied for a loan elsewhere or, if she applied to your lender, wait for your lender to complete the loan transfer process. Sign your vehicle's title or ownership release paperwork, which varies depending on your state and lender's requirements. If your lender mails you the paperwork, sign and send back your paperwork promptly.

5

Take your license plates off of your vehicle before giving the vehicle to the new owner. Cancel your insurance policy quickly to avoid paying extra insurance costs. Return your plates to a local motor vehicles office if your state requires it.

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When Can a Car Be Repossessed in South Carolina?

State laws establish the rights consumers have when their default on their vehicle loans. As collateral for a loan, the borrower of a car loan gives her lender a right to repossess her vehicle if she defaults on her loan. In South Carolina, before a lender can repossess or reclaim its property, it must provide the borrower with advance notice and a right to cure her deficiency before it can proceed with repossession.

Notice

Title 37 of the South Carolina Code establishes when a lender can repossess a vehicle. Lenders must provide defaulting borrowers with a "Notice of Right to Cure" their loan defaults before proceeding with repossession. Under South Carolina law, a borrower is not in default of his loan obligations until he is at least 10 days behind in his payments. Additionally, the notice must give a borrower at least 20 days to cure his delinquency or default. However, federal credit unions do not have to provide this cure opportunity.

Right to Cure

South Carolina does not require lenders to provide car buyers with more than one "Notice of Right to Cure." If a car buyer defaults on her loan more than once, the lender is not required to give her a subsequent notice. Thus, the lender can proceed with repossession without giving the borrower a right to cure after the second missed payment.

Lenders' Rights

Lenders can repossess their vehicles by filing a self-help lawsuit after completing a "Claim and Delivery" notice or by towing defaulting borrowers' vehicles. A lender can hire a repossession agency to conduct the repossession or the lender can conduct it. However, lenders and repossession agencies must comply with the existing South Carolina laws, which state that as long they abide by the state's peace laws by not breaching the peace, they may repossess vehicles on the borrower's private property or at their place of business if contracts provide them with these rights. Lenders have a right to sue car buyers for the remaining deficiency or the difference between the sale amount and the outstanding loan amount, if they sell repossessed vehicles.

Borrowers' Rights

In South Carolina, borrowers have a right of redemption to redeem their vehicles. Lenders must send borrowers with a written "Right to Redeem" notice after the repossession. The notice must outline the lender's intentions to sell or auction the repossessed vehicle. Buyers may have up to two weeks to pay their delinquency and keep their vehicles. Under South Carolina law, borrowers who have paid at least 60 percent of their loans can demand a sale within 90 days of repossession. Any proceeds after the loan is paid must then be returned to the car buyer.

Considerations

Since state laws can frequently change, do not use this information as a substitute for legal advice. Seek advice through an attorney licensed to practice law in your state.

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Can a Car Be Repossessed for Failure to Pay Insurance?

To determine if your lender can repossess your vehicle for failing to maintain an insurance policy, read your loan contract. Maintaining full-coverage insurance is an auto loan requirement, but lenders differ on penalty actions. Some lenders may choose to automatically add an insurance policy to your loan account, which raises your loan payment.

Lender Penalties

Your lender's penalty for not maintaining insurance is stated in your loan contract. Your lender may repossess the vehicle or choose to add its own insurance coverage. If your lender adds its own coverage, expect an increase in your monthly loan payment. Lender-provided insurance policies protect only the vehicle in the event of a loss. The coverage is more expensive than you can obtain on your own and does not meet state required coverage requirements. You may face penalty fees from your state for lack of liability insurance if your car remains on the road.

Insurance Notification

Your insurance company notifies your state and lender of any insurance changes. If you let your insurance lapse, cancel or change your coverage, both your state and lender will find out. Both your lender and your state motor vehicle department are likely to offer you a grace period, allowing you several days or more to correct the insurance issue or provide proof of coverage if a mistake was made. Correct the issue as soon as possible to avoid defaulting on your loan contract.

Correspondence

Your lender is unlikely to send out a repossession company to seize your vehicle without notifying you. Expect to receive phone calls and mail from your lender about your insurance issue. If you avoid your lender, it will start the repossession process if your loan contract states that repossession is a penalty. If the lender increases your car payment because of a policy it had to purchase, you'll receive a bill that reflects your new car payment amount. You must pay your new loan payment amount to avoid loan non-payment issues.

Repossession

If your lender repossesses your vehicle, it will significantly damage your credit. You may have the opportunity to purchase your vehicle back from your lender, but the repossession will remain on your credit report for at least seven years. If you do not get your vehicle back, your lender will sell it instead. If the vehicle is sold for less than your loan payoff amount, you must pay the balance due. Avoid repossession issues by talking to your lender and purchasing the correct insurance coverage.

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How to Finance a Used Car in Los Angeles, California

If you need to buy a used car in Los Angeles, California, you do not need to save up all the cash for the purchase. Regardless of where you are purchasing your vehicle, you can attain financing from a local or national financial institution. Before applying for financing, you can check the average interest rate for used-car loans in your zip code on Bankrate.com. Doing this allows you to recognize a good financing offer from a bad one.

Instructions

1

Fill out a finance application with the car dealership, if you are purchasing from a dealer and want to finance through them. Some dealers, such as Longo Toyota, have online applications, which you can fill out before visiting the car lot. Otherwise, you can ask to complete the application in-person. The application is a standard credit application, which asks for your income information.

2

Visit a local bank, or the bank website, to apply for a used-car loan. Some Los Angeles area banks that offer used-car financing include Los Angeles National Bank, University Credit Union and Pacific Resource Credit Union. The loan application asks the same questions about your income as the car dealer finance application.

3

Use a multi-quote service, such as Lending Tree or Up 2 Drive, to submit your financing application and get offers from up to four national and local Los Angeles banks. You can compare the loan offers and choose the best interest rate and terms for your purchase.

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