Tips for How to Buy a New Car With Bad Credit

Bad credit doesn't necessary mean you can't obtain a new-car loan with a reasonable rate or that you even have bad credit at all, which is determined by possible lenders. Banks take many aspects of your life into account for loan approvals, including revolving accounts and history, mortgage payments, time on the job and time at your address. Learn what you can do to obtain a new-car loan.

Credit Standing

Obtain a copy of your credit report from the Annual Credit Report website, which provides a free report from each of the three major credit bureaus once a year. Go over your credit report and determine whether or not you have any revolving accounts past due. A revolving account includes credit cards, mortgages and loans. If you do have accounts recently past due, catch up with your payments before applying for a new-car loan. If you can take care of any other negative items on your credit report, do so before applying. Keep receipts for any payments you make to provide to a dealership at the time you apply for new-car financing.

Required Information

Some banks are more lenient with credit delinquencies than others. If you have a long-term job with decent pay and a stable, long-term address, you are more likely to obtain a new-car loan than someone who may have a better credit score but an inconsistent address and employment history. You can expect to provide a variety of information to the dealership for a new-car loan. In addition to any payment receipts you've obtained, bring your most recent paystub to prove your year-to-date income. If you are self-employed, bring in your last two years of tax returns to prove your income. Bring proof of residency, which includes a recent bill for a utility service, such as water, electric or cable. Do not bring in a final notice. Have your license with you and compile a list of five references, which is used for bank contact in case you default on your loan. Have names, addresses and phone numbers ready. Not all borrowers require you to supply this information, but it is common. Determine how much money you can put down towards the loan and make sure your funds are available before going to the dealership.

Work With a Dealership

Work with a dealership. Start your buying process in the beginning of the month to allow the dealership some time to work on your car loan. Dealerships want to sell cars and give themselves until the end of each month to reach quotas. Many dealers have established relationships with banks they use frequently. However, if your credit is poor to bad, the dealership may need time to contact and work with its resources to obtain your loan. Let your salesperson know that you believe you have bad credit, as the dealer may have to base your new car options on rebates or price, depending on possible approvals. You may have to be open to other possibilities. For example, if the dealership can secure your loan, the bank may require you put down several thousand dollars. The dealer will work with you to find a car that has rebates (immediate money off) that can also be discounted in addition to your money down, allowing for a loan approval.

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How Does a Dealer Incentive Work?

Automotive sales are a very competitive business, especially in the age of price-conscious shoppers willing to drive between dealerships hunting for the best deal. To help dealerships boost their profit margins while remaining competitive, many automotive manufacturers provide dealerships with incentives and other programs that provide them with cash payments or refunds to sell certain vehicles or to manipulate invoice prices on vehicles. In some cases, dealers may pass these incentives onto consumers to become more competitive, although in some markets, dealers may retain them.

Basic Dealer Incentives

The most common form of dealer incentives are when automotive manufacturers provide dealers with a cash incentive to sell a certain type of car. Usually coupled with an effort to clear inventories of last year's model or otherwise unpopular cars, automotive manufacturers provide dealers with cash payments for each qualifying vehicle they sell. With a concrete bonus to sell more of a particular type of car, dealers theoretically work harder to earn larger amounts of dealer incentives. In some situations, dealers may pass on incentives, or portions of incentives, to consumers to help entice them into purchasing from that lot.

Financing Incentives

In some cases, dealerships receive incentives from banks and loan companies from referring customers to them for automotive loans. In the case that a dealership doesn't provide financing direct from the manufacturer, finance companies provide bonuses and incentives to dealers for providing them with potentially lucrative loans. In some cases, dealers receive higher incentives for steering buyers into loans with higher interest rates, so consumers should be knowledgeable of loan rates before discussing financing with dealers, according to Bankrate.

Holdback

To help keep invoice costs higher and provide the illusion of sales at a slim profit margin to consumers, most manufacturers provide holdback programs. In these programs, dealers are invoiced for the full price of the vehicle stated on its invoice that consumers read. Periodically, long after receiving payment on invoices, dealerships refund a portion of the price, known as holdback, to dealers. This practice allows dealers to sell vehicles at invoice price and still turn a profit.

Consumer Incentives

Vehicle manufactures also offer incentives to consumers to help entice them into purchasing their wares. Consumer incentives may vary from cash-back programs to manufacturer-subsidized financing. Because auto makers provide these incentives directly to consumers, dealerships aren't involved, and incentives can't be held back to help boost profit margins. In some cases, dealerships will provide their incentives to consumers in order to increase the allure of purchasing at that dealership rather than at a competitor's lot.

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How to Finance a Mobility Van

A mobility van is a van that is equipped to meet the needs of a handicapped person. A mobility van is usually a regular van that is modified to meet the needs of the person using the van. Purchasing a modified van typically costs $20,000 to $30,000. The cost of modifying a standard van is typically $5,000 to $15,000 depending upon the type and extend of modifications that need to be made to accommodate the user. Banks and credit unions commonly offer auto loans that can be used to cover the costs associated with purchasing or modifying a mobility van. Other options for obtaining funding also exist.

Instructions

How to Finance a Mobility Van

1

Apply for financing through a patient-focused financing company, such as PFS Patient Financing (see Resources). These companies tend to be more lenient with their qualification requirements than traditional banks. Additionally, they tend to offer more favorable repayment terms than banks. Many of these companies require a doctor's statement along with employment verification to obtain funding. Have these documents available before contacting these companies.

2

Contact your local Veteran's Administration (VA) to apply for funding through the VA if the van will be used for a veteran. (See Resources) Grants are available through the VA for veterans to utilize to purchase a mobility van or to modify a traditional van. The application process typically involves a medical exam by a VA doctor and a request for funding.

3

Contact the Knights of Columbus chapter in your local area (see Resources) to apply for a grant from them. The Knights of Columbus offer grants that can be used to purchase or modify a mobility van if the mobility van will be used for a child. Usually, a doctor's statement outlining the nature of the disability and need for a mobility van is required with the application, though this can vary from chapter to chapter.

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How to Get Your Name Removed As the Co-Signer of a Car Loan

As the co-signer on another person's car loan, you are held legally responsible for repaying the debt. The lender relied on your good credit as security against the risk of lending to the primary borrower, who likely had bad or no credit. The only ways to get your name removed from the obligation are to get the lender to agree to release you or to have the primary borrower refinance the loan without you. You will require the primary borrower's cooperation for either of these solutions, so there is no guarantee that they will work.

Instructions

Co-Signer Release

1

Tell the primary borrower that you would like to be released from your obligations as a co-signer.

2

Ask the primary borrower contact the lender and ask to apply for co-signer release. If the borrower has made all of the payments on time so far and has a higher credit score than when he first applied, the lender might be willing to remove your name from the loan.

3

Get, in writing, the agreement that says you are released from all obligations with the loan. This release form will make it impossible for the lender to pursue you for payments in the future.

Refinance

4

Tell the primary borrower that you would like him to refinance his auto loan.

5

Help the borrower pull a copy of his credit report from the Annual Credit Report website and check its accuracy. If there is anything inaccurate, follow the instructions printed on the credit report to dispute the errors. Wait for confirmation that errors have been fixed before proceeding.

6

Ask the primary borrower to apply for an auto loan refinance with the same lender or a different lender. He will either need to qualify on his own with his credit history or find someone else to co-sign the loan.

7

Tell the primary borrower to keep making payments on the loan on which you are a co-signer until he receives confirmation that it was paid off with the refinance loan. If he misses a payment, this will hurt your credit score.

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10 Things to Look for When Buying a Used Car

When you set out to buy a used car, you do not want to make your final decision until a qualified mechanic has looked the car over and given you an honest assessment. But before you bring a vehicle to the mechanic, there are things you can look for to give you an idea as to whether or not you want to purchase the vehicle.

Tire Tread

You can buy a tire tread gauge at any auto parts store. Use the gauge to check the tread on the tires of the car you are considering buying. Remember that low tread should not be a deal breaker, it just means you may need to buy new tires along with buying the vehicle.

Tire Wear

Examine the tires closely to see of there is any uneven wear on the tires. If the outer edge of the front right tire is bald, but not the inner edge of the left tire, then the vehicle is out of alignment. Once again, this should not be a deal breaker but the need for an alignment is something you should make note of.

Puddles

Before you examine the car, ask the owner to move it to a spot in the driveway that is clean. After looking the car over, ask the owner to move the car back to its original spot. If there are puddles where the car was parked, the something could be leaking. A shiny black puddle is oil, a green puddle is anti-freeze and a pink puddle is transmission fluid. This could be the sign of a much more serious problem.

Scratches

Some car scratches are worse than others. If you see white at the bottom of a scratch, the scratch has not gone down to the metal. That scratch can be touched up with a touch-up kit with no problem. If you see silver or brown at the bottom of the scratch then the scratch has gone down to the metal. Silver means it is a fresh scratch, and brown means the scratch is already starting to rust.

Seat Rips

If the car has seat covers then ask that they be removed. Any rips in the seat upholstery will only get worse over time even when covered by a seat cover.

Slow Shifting

An automatic transmission that is slow to shift is low on fluid. That could be neglect on the part of the owner, or a transmission leak.

Soft Brakes

When you press down on the brakes they should give you resistance immediately. If you can press down almost to the floor then the brakes are soft. This could mean the brakes are low on fluid, or it could be a sign that the brakes need work.

Loud Ride

Over time the bearings on your car's wheels begin to wear out. Bearings are expensive to replace. If you hear a deep buzzing, or even a grinding sound, that seems to be coming from the front of the car, it could be the bearings. They should be looked at before you decide to purchase.

Check Engine Light

Cars have become incredibly complex machines run by electronic sensors and computers. If you are test driving a used car that has the "check engine" indicator lit up, it should be a red flag. The seller should take care of a "check engine" problem before putting the car on the market. No matter how much the seller tries to play down the importance of the indicator light, do not purchase a used car with the "check engine" light on.

Other Indicator Lights

Indicator lights other than the "check engine" light should alert you to a problem, and it should be taken care of before you purchase the vehicle. Tell the seller that you would like to take the vehicle to a certified mechanic to find out why the indicator light is on, and you would like the problem taken care of before you buy the vehicle.

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How to Turn in a Bank-Owned Car for Repo

Having your car repossessed can be a terrible experience. The vehicle can be taken at any time, night or day, and most states allow the agent repossessing your car to come on to your property to do so. This can happen once your auto loan has gone into default. A simpler way to deal with this situation is to turn the vehicle in directly for repossession by working directly with the bank holding the loan. This lets you know when you will lose the vehicle and avoid the stress of wondering when or where it will happen. This also helps you avoid fees associated with the repossession of the car, fees that ultimately are the borrower's responsibility.

Instructions

1

Contact the bank holding the loan and ask to speak with the representative working on your defaulted loan. This could be a department instead of a single person if you are working with a larger bank.

2

Talk to the representative about your loan and the status. Find out the policy of when a vehicle is subject to repossession. Most banks will give time for a person to catch up on the loan before repossessing the car, because they would rather get their money than go through the repossession process.

3

Offer to turn your car in at the bank office or to meet an authorized agent of the bank at an agreed upon location. Banks would rather receive the vehicle directly to avoid the uncertainty of finding and repossessing the vehicle. If the bank does not have an office near you or does not accept cars at their office, they will make arrangements for the company or person that handles their repossessed vehicles to meet with you and receive the vehicle. Schedule a time and place to meet.

4

Remove any personal belongings and make sure all the keys, manuals and other items that belong with the car are in the car before turning it in.

5

Take the car to the scheduled meeting. Make sure you have a ride away from the meeting if it will be needed. Turn over the car and any items that go with the car. The car will be sold at auction or resold by the bank to another buyer. You will still be responsible for any money owed on the car minus any money they receive for the car. If you owe $10,000 and they sell it for $8,000, you will still owe the bank $2,000 plus any repossession fees incurred.

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How to Reduce Interest Rate on Current Car Loan With Bad Credit

You read every day about how low interest rates are. Yet the rates on your car loan are far higher. The reason might be your credit: Lenders charge higher interest rates for borrowers whose credit scores are under 740. Even with bad credit, you might be able to lower the rate on your car loan. Doing so, though, is challenging: You'll have to prove to your lender that you've suffered a financial hardship that has made paying your current car loan too difficult.

Instructions

1

Gather and make copies of the financial statements that you'll eventually send to your auto lender to prove that you gross monthly income has taken a fall thanks to a financial setback. Gather those that prove, too, that your monthly debt obligations have not fallen accordingly. These papers include your credit-card statements, other loan statements, federal income tax return and most recent paychecks.

2

Call your auto lender at the number on your current loan statement. Explain that you've recently suffered a financial hardship--it could be a job loss, illness or drop in annual income--that has made it impossible for you to pay your auto loan payments each month. Request that your lender lower your interest rate as a way to make your payments affordable.

3

Write a financial hardship letter that spells out exactly why you can no longer afford your monthly auto payments. Also include your request for a lower interest rate and lower monthly payment.

4

Mail, fax or send by e-mail your hardship letter and the copies you made in Step 1. Give your lender time to review this paperwork. Your lender will need to determine if your hardship is severe enough to warrant a reduction in your interest rate, despite your bad credit.

5

Agree to a new interest rate if your lender approves your request. Make sure that you can afford the new payment that results.

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