Auto Loans with Bad Credit And Low Income
If you’re doubly saddled with both a bad credit history and a low income, it can also be doubly difficult to arrange auto loans directly with an auto dealership when you need them. Bad credit auto loans can be more difficult to qualify for than auto loans for people with a good credit rating, even without having a lower income. What the issue boils down to is this; the lender/dealership is allowing you, the borrower, to drive off of their lot with an automobile that is valuable, and this creates a risk to the dealership and lender (e.g. if you stop making your monthly payments and default on your auto loan, etc.) Nevertheless, this does not mean that borrowers that have a bad credit history and a low income will not be able to qualify for bad credit auto loans. The reality is that people with bad credit, a lower income, and even first time auto loan buyers can qualify for auto loans, providing they are willing to make concessions where need be to mitigate the risk that the dealership and lender are taking on to make the auto loan with bad credit and low income. Here are some pretty straightforward auto loan tips that can help you to get an auto loan with bad credit if you happen to have a lower income as well:
Three Auto Loan Tips if you have Low Income and Bad Credit
1. How to Boost Your Credit Score Before Applying for Auto Loans?
If you have the luxury of a few months or more time before you need to make your automobile purchase, there are a few things that you can do to give your credit score (FICO) a boost.
A. Stop using your credit cards to make purchases just as soon as you know that you will be applying for auto loans in the future. This will give you time to pay on some of your balances without spending what you have paid off, thereby lowering your debt to credit ratio and potentially raising your credit score (FICO) as a result.
B. Continue to make your credit card payments on time, and if they are behind, get them caught up immediately. If there are any creditors or collection agencies harassing you for payments that are very far behind or in default, talk with them when they call and ask to make arrangements to pay whatever you can afford, no matter how little, every month. Tell them that they must stop any unfavorable reporting to the credit bureaus in order for you to make payments. This will work in many cases.
C. Get a copy of your credit report from each of the three major credit-reporting bureaus. You are entitled to a free copy of your credit report from each of the bureaus one time each year. Go directly to the credit reporting bureau’s website and get your free copy there:
Equifax www.equifax.com
TransUnion www.transunion.com
Experian www.experian.com
There is no need to pay for copies of your credit reports from one of those “free credit report” type websites. (In truth, they are not actually “free” on those websites if you want all three reports from all three bureaus.) You can actually get them for free from the credit bureaus themselves. Make sure to get a copy of your report from all three of the bureaus and not just one, as not all credit bureaus will have the same information about you. By examining your credit reports, you can find out just how bad your credit score is; it may be better than you thought, or it might be worse. In either case, when you apply for bad credit auto loans, you don’t want the dealership/lender to know more about you than you do. Go over the reports with a fine-toothed comb. Identify anything negative that you disagree with or cannot remember and send a letter to the credit bureau to dispute the item. The credit bureau has thirty days to handle your complaint, or the item must be removed. In many cases the item will be removed and your credit score will go up as a result. Repeat this process for each and every item that you would like removed from your credit reports. Dispute just one item per letter. Depending on how many negative items are on your credit report, this can take several months. However, if you are persistent, you will raise your credit score by quite a bit and may not be in need of bad credit auto loans at this point anymore.
2. Making even a small down payment can make a difference when applying for bad credit auto loans.
Consider making a down payment on the auto loan with bad credit that you plan to apply for. Once again, it comes down to mitigating the dealership’s/lender’s risk in approving your auto loan with bad credit. Even a token down payment ($200, $500, or more) can convince the dealership/lender that you plan to be a good partner in the auto loan and will make your payments on time. However, more importantly, the higher your down payment is, the harder that you can push for a lower interest rate on your auto loan. The combination of having a lower interest rate and having paid off some of the vehicle’s cost up-front will result in a much lower monthly auto loans payment.
3. How a cosigner can be an auto loans game changer?
The use of a cosigner on an auto loan with bad credit and low income can make the entire issue of having bad credit and no income moot if done properly. When you apply for bad credit auto loans with a cosigner on your application, the dealership/lender will assess their risk in making you the auto loan (with bad credit and no income) based upon the cosigner’s credit rating and income, and not yours. Bearing that in mind, pick your cosigner carefully! When looking for someone, usually a close relative or friend, to cosign on your auto loan with bad credit, you will want to find someone with absolutely stellar credit and a good income if at all possible; remember, the higher the credit score and income that the cosigner has, the better it is for you, because the auto loan’s interest rate will now be based on the credit score (FICO) and income of the person cosigning, and not yours. If the cosigner has a higher credit score, then you will be able to negotiate with the automobile dealership for a lower rate of interest on the auto loan, since the dealership’s/lender’s risk has now been considerably lowered, allowing the dealership to give you a lower interest rate car loan. However, most importantly, don’t forget that if you fail to make your monthly car loan payments, the cosigner will become liable to repay the balance due on the car loan for you. It’s very important that the friend or family member cosigning on your car loan is aware of this. Therefore, the cosigner should only cosign for the car loan if he or she can afford to repay it in the event of your default.
Bearing these three tips in mind, especially the first two, it is certainly possible to qualify for an auto loan with bad credit, even if you have a lower income or are a first time auto loan buyer. Remember not to rush into any new car loan. Always look closely at the terms, length of the loan, and interest rates before you pick the dealership that you plan to work with. Because you are in more of a fragile situation as far as your credit rating is concerned, beware of dealerships with extremely high interest rates that only target those with bad credit. These dealerships usually have cars that are very much overpriced and the worst buyer terms and interest rates. The best way to find out exactly what auto loans that you qualify for right now is to get a free no-obligation auto loan quote here.