How to Qualify for Bad Credit Auto Loans

It almost seemed totally impossible for people with bad credit to purchase a vehicle over the past 34 months. This is because most of the credit unions and banks would not accept an application with bad credit. People have acquired bad credit as a result of the global economic recession. They could be victims of mass layoffs and were not able to make payments on time since then. However, with a more competitive automotive industry today, car dealers and some lenders have opened their doors for these people so that they can get what they badly need - a car.

To avail of bad credit auto loans, borrowers should first prepare the required documents requested by the lender, of which the credit score is the most important. The credit score is indicated in the borrower's credit report. The credit report contains all information about the borrower's financial activities like borrowing, payments, bankruptcy and the like. The credit report can be obtained for free from the three credit bureaus. Credit scores from 640 and above are good credits. On the other hand, a credit score of 600 and below are considered sub prime to very bad credit. Credit score ranges may vary with different lenders. The credit score is the main basis for the car dealers and lenders in accepting or rejecting a loan application and in determining the interest ratethe applicant deserves.

Other documents that borrowers with bad credit need to present to the lenders are theproofs of income, employment, and residence, driver's license and others. The first three requirements are by which car dealers and lenders evaluate the applicant's financial stability and capability to make and sustain payments in the future. Borrowers should study these documents well before pursuing an application for bad credit auto loans. They should be prepared to defend their financial capability to the lenders or car dealers. Therefore, it is important that borrowers know how to explain these documents to them.

Borrowers looking for a bad credit auto loan should be aware that the interest rate in this type of loan is higher than what normal loans can offer. A lower interest rate is possible with bad credit auto loan if the borrower would be able to make a bigger down payment. However, if this is quite impossible for the borrower at the moment, he or she can opt to delay the car purchase and save for enough money first.

 

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