3 Things to Understand When Purchasing a Car on Bad Credit

If you want to buy a car but you have a bad credit, expect the dealer to require you a downpayment. But, if you know how, you can purchase a car without shelling out any money. You just need to understand a few things:

1.) The reasons why a down payment is required
The usual reason why a downpayment is needed is that it brings in additional profit to the sale. Aside from this, it is also needed in order to bring down the entire amount that will be financed for the approval of the lender. If you know the real reason why your lender is seeking for a downpayment from you, then you can work your way to lowering the amount or minimizing it completely.

2.) Your financing options are not limited
Even if you have bad credit, you are not limited to seek your financing from a car dealership. Many people think this way that is why they do not dare try seeking for bank loans. Moreover, settling for car dealership financing is the main cause of unnecessary expense because of the unreasonable finance charges. To avoid this, try traditional loans or other means to obtain cash for your car. You will never know if a bank or other lender will reject or approve you. You might as well try because you may be in for a surprise.

3.) Car dealerships increase their car prices
Everyone knows this and so must you. Not only do they mark up the prices of the car they are selling. They also do this for the interest rate they charge with it. If you seek financing from them, they will give your application to a lender. Then, the lender will give you an offer at a certain rate. Since you have a bad credit, the dealership will increase the interest rate by an average of 3%. The additional rate goes to the dealership as profit. This is not yet accounting for the revenue they already get from the sale of the car without the interest.

Bottom line, you can buy the car that you want without the need to give a downpayment or even despite of your credit standing. You only have to seek for other loan alternatives aside from car dealership financing.

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Self Employment on Bad Credit Auto Loans

In order for you to know how to qualify for approved auto loans with self employment income, you first have to identify the qualification issues. If you’re both credit-challenged and self employed you need to know the issues you’ll be facing when you apply for terrible credit auto loans.

There are poor credit car loan processes that allow potential buyers to avoid a tote the note dealer while reading up on many of the issues that often lead to repossession. Unfortunately, tote the note lots are sometimes the only choice for self employed buyers with bad credit if they either underreport or incorrectly report how much they make.

Self employed individuals are one of the most difficult bad credit auto loan approvals. This usually happens because self employed workers are responsible for keeping their own records and reporting this income on their income tax returns.

It may be possible for self employed individuals to reduce the amount of tax they pay by not declaring the full amount of their incomes. But doing this could prevent them from getting a car loan, especially if their FICO scored fall below 640. If regular banks don’t usually require proof of income, this isn’t the case with bad credit lenders.

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They require the verification of an applicant’s income through a professionally prepared tax return. Whatever isn’t listed or declared in a tax return, even with the availability of supporting bank records makes it invalid as a proof of income. Bad credit lenders require a monthly income of at least $ 1,500 to $ 1,800. Which means that self employed individuals need to report a minimum yearly net profit between $18,000 and $21,600.

Even if the reported net profit meets the above requirements, there is a chance that monthly expenses are out of proportion to the reported income. For example, someone reports an income of $2,000 per month. If this person’s real monthly income is $3,500, reasonable monthly expenses could be $1800. In this case, even though the actual debt to income ratio is acceptable, the difference between the reported income and the expenses would not qualify that person for a bad credit car loan.

If you are self employed, you have to consider the income you report because this will affect your debt to income ratio as it relates to qualifying for a bad credit auto loan. If the income declared on your income tax return is too low or if your monthly debts are not in line with your reported income, a bad credit lender will definitely not approve your loan application.

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You can get the car that you have always dreamed of by getting a car loan from any bank. However, this is only possible if you have a good credit rating. Obtaining a car loan with bad credit can be difficult but it is not impossible.

There are many lenders who can give a car loan for individuals with bad credit rating. The important thing is to determine one’s credit score before applying for a loan. Credit scores range from 350 to 850. A score below 580 is considered poor. While the score decreases, the chances of obtaining a loan decrease. Thus, if you plan to take a loan, you have to know your current credit score to be able to determine the probability of getting an approval.

Aside from knowing your score, it is also important to know the amount of down payment you can make to get a loan approval. Paying an initial amount reduces the loan’s interest rate. Oftentimes, the amount of down payment is dependent on your credit score. The average percentage is usually 20% to 50% of the total loan amount.

There are other preparations that can be done before getting a bad credit auto loan. These include reviewing your credit report annually to be able to clean up your credit standing the soonest possible time. Another is to make timely payments of bills. The most important is to obtain a good credit standing. All these will impact the interest rates of an auto loan by significantly reducing it.

There is no assurance for approval when getting a bad credit auto loan. If you are rejected, do not worry. You can always look for other lenders that can give you a loan despite your credit standing. Lenders for people with bad credit standing can be found online. They can even give low down payment and low interest rates for auto loans despite the poor credit standing.

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