If you have poor credit, you may think that you have no chance of getting approved for a car loan. However, car loans are easier to get approved for because they use your car as collateral to secure your loan. This makes your loan less of a risk to a lender. Additionally, there are measures you can take to improve your chances of getting approved for a car loan. This article discusses how you can get approved for a bad credit car finance: Add Up Your Current Debts The amount of money you pay each year toward debts shouldnt exceed 30% of your annual income. This includes your car payment. Before applying for an auto loan, add up the total amount you pay toward your debts each year, including the amount you plan to pay on your car. If this amount exceeds 30% of your annual income, youll need to take measures to lower your debt-to-income ratio. This means that youll either have to pay off some debts before applying for a car loan, or youll have to reduce the amount youll borrow. Make the Right Down Payment When lenders consider lending borrowers money for a car, they look at your LTV ratio. They do this by dividing the principal amount you want to borrow by the appraised value of your car. For example, if your car is worth $10,000, and youre borrowing $9,000, your LTV would be 90%. Lenders use your LTV to determine the amount of risk they incur by lending to you. Lenders rarely decline loans with 80% LTV. So, if your car is appraised at $10,000, and youve offered $9,000 to the seller, you may choose to make a down payment of $1,000. This will set your LTV at 80% and improve your chances of getting approved. Clean Up Your Credit Before Applying Obtain copies of your credit reports from the three main reporting agencies. Check each report for errors or inaccuracies. Keep in mind that it takes these companies up to 30 days to follow through on disputes. Make timely payments on your other credit accounts in the months prior to applying. Even a few months of timely payments will improve your chances of approval. Finally, avoid applying for other forms of credit. Inquiries on your credit report temporarily lower your credit score. |
