Understanding Credit: How to Get a Bad Credit Car Loan
Do you have any questions about obtaining a car loan despite a low credit score? You’re not alone, and we’ve compiled all of the most commonly found questions we could find. Poor credit scores aren’t always the result of poor financial behavior--sometimes, bad things happen to responsible people despite their best efforts.
While many different factors come into consideration when a creditor decides on whether or not to give you a bad credit car loan for a vehicle, four of those reasons play a key role in the decision process:
Application Information - Information you provide such as employment, residence and income information.
Credit History - Information of all other credit in your credit file.
Down Payment - The amount of money you are putting toward the vehicle or the total value of our trade.
Vehicle Selection - The year, cost, and the mileage on a vehicle.
When that happens, you still need a way to secure a reasonable auto loan to meet your family’s needs. Get in touch to learn more about our car loans for bad credit, or continue reading to see our most frequently asked questions.
As always, get in touch with questions! We’d love to hear from you.
Frequently Asked Questions
How is it that Lenders can Offer Guaranteed Bad Credit Loans? If credit scores really matter so much to loan providers, you might be wondering why applicants with poor credit are even granted loans at all. Lending agencies use credit scores as a barometer for risk; the higher your score, the lower your risk factor is to them. If you have an exceptionally low credit score, you are at greater risk in their opinion.
The way lenders balance this risk is by charging higher interest from higher-risk borrowers. A typical APR (annual percentage rate) would be 4-5%. A high-risk APR would be 10% or more. That way the lender recovers more of the money up front through fees.
It’s important to calculate the true cost of car ownership when you look at a high interest rate. For instance, even with a 20% down payment, a $30,000 car will actually be quite expensive over a standard 60 month payment period when you factor in a 10% APR.
What If I’ve Filed for Bankruptcy in the Past? Bankruptcy happens, and no, it doesn’t erase the possibility of receiving a car loan (despite public opinion to the contrary). You can still receive a guaranteed auto loan meant for customers with poor credit if you can take on the extra interest.
If you’ve filed chapter 7 bankruptcy, you’ll need wait several months until debts and proceedings have passed and been finalized. After four months or so, you can apply for a guaranteed auto loan. If you’ve filed for chapter 13 bankruptcy, you’ll need to receive a green light from you trustee.
In most cases, when a car buyer is emerging from bankruptcy, a close relative will co-sign the loan. That means that they are also on the hook for loan payments if the recipient defaults, but it makes loans more accessible to individuals with bad credit.
What is Loan Refinancing? You may need to take on a high interest loan initially because a poor credit history, but if your financial health improves, your credit score will improve over time. Once you’ve reached a certain level of improvement, you may be eligible for “refinancing.”
Here’s how it goes: your credit score must improve, and you must be eligible for a lower interest rate. Then, another lender with buy your contract from you current lender, and you will start making your loan payments to the new lender at a lower interest rate. This process is advisable for those who are able to lower their score by at least a full percent. Anything less than that may not be worth the effort.
How Do I Improve My Credit? If your credit is poor, but you don’t have a recent catastrophic issue (like bankruptcy), you can take steps to improve your credit. By keeping your credit card balance to under 30% of your total available credit, you’ll probably see your score tick upwards month over month. Constantly maxing out your credit card and holding onto that debt won’t do you any favors.
Of course, make sure you pay all of your bills on time, avoid applying for additional credit cards, and follow general financial best practices.
What Are Things That will Hurt My Credit Score? While bankruptcy is an obvious problem, there are other things that hurt one’s credit score. Divorce is a common credit-disruptor; proceedings can be expensive, and depending on prenuptial agreements, one spouse or the other can be left with severe financial shortages.
If your ratio of debits to credits is insufficient, it can hurt your score, and maintaining too high of a credit card balance too often will have a dramatically negative effect on your score.
Also beware of opening department store or retail credit cards; people often do this to save another 20% at the cash register, but if you don’t need the card and don’t plan to use it, you may forget about the small balance you owe.
Last but not least, simply lacking sufficient credit history can result in a low score. If you don’t have a long renting history, credit card payment history, or car payment history, creditors may simply not have enough material to work with.
How Big Should My Down Payment Be? We always recommend 20%, and if your credit is bad, that’s even more important. In fact, with low credit, pay as much “down” in cash as possible; the bigger your down payment is, the less money you have to borrow at a higher rate of interest.
What is APR? Annual Percentage Rate (APR) is essentially the cost, or fee, you pay for the privilege or borrowing monthly. It’s calculated on an annual basis as a percentage of the total you borrowed, and you make the payments monthly. The lower your APR, the better.
What If I’ve Just Started a New Job? Do you need to show pay stubs to qualify for a loan? Depending on the loan agency, you may be able to show proof of employment, like a signed offer letter. If worst comes to worst, you can get a close relative to cosign the loan with you.
How Do I Get Enough Money for a Down Payment? The easiest way to put 20% down is to combine some of your saved money with a vehicle trade-in. If you’re buying an affordable used car, trading your car in at the time of purchase may be enough to cover a 20% down payment.
What if I am a first-time car buyer? It is our business to help first-time buyers get the car of their dreams. Every first-time car buyers situations are different, but more often than not, our finance team can secure financing and get you into the car of your dream.
Bad Credit Auto Loans in Harrisburg & York, PA
If you are looking for car dealerships for bad credit near you in Harrisburg, York, or any other surrounding Central PA area, then Bob Ruth Ford is the place to go. We stock hundreds of used cars, trucks & SUVs for sale and our finance center is staffed with trained poor credit experts to get you the best rate possible for the vehicle you need today. Unlike some other bad credit car dealerships, Bob Ruth Ford is committed to you and wants to help you get back on your feet. We work with multiple banks and credit unions to ensure you do not get stuck with an unfair high interest rate auto loan.
We try to offer great car deals to everyone, and if you’re looking at budget friendly options in particular, our selection of used cars for sale under $15,000 will meet your needs. Just because these cars are below $15,000 doesn’t mean they don’t run well or look good. We’ve made sure that each vehicle we sell runs correctly and looks clean and attractive, and you have our guarantee that each car we sell will be a great value for you.
Stop in to Bob Ruth Ford today at 700 North US Route 15 Dillsburg, PA 17019 and see what we can do for you. Or, give us a call at (877) 818-1593. Our specialists are waiting to help you get into the vehicle you need today.