Bad Credit Blog

It sounds silly, I know. Pre-approved car loans for people whose credit is tanked. But there are several good reasons for pre-approval - especially if your credit isn’t that great.

As a car salesperson in Phoenix I dealt with a wide range of people with bad credit. The worst ones were the ones with the sense of “entitlement.” Strolling onto a lot as if they were millionaires and picking out a vehicle that was obviously outside their price range based on their credit history and/or their current income.

The second type came on the lot meek and mild and wanted to buy a car “under $5,000″ and finance it. They knew they had bad credit and thought they were “thinking like the bank.” In other words, lending them just enough to get a car, but not enough for a new or newer model.

Both of these types had the potential to be completely ripped off by the wrong dealership. Why? Because they really had no understanding of how credit and financing works in the car business.

So how does getting pre-approved for a car loan this benefit you if you have bad credit?

When you have bad credit often you can’t negotiate for the best price on a car. Or pick out the exact car you want for that matter. Why? Because what most people don’t know is that when you have bad credit lenders “charge” the dealership a fee for the risk they are taking on you.

What does this mean? The charge is usually a percentage of the car’s value - for instance 5%. So if you’re buying a $10,000 car and the fee is 5% then that’s $500 the dealership WON’T take off the price of the car! Not only that, the $500 is part of the amount you’re financing so you are actually paying the bank to assume the loan. I’ve seen charges as high as $2,000 because of a person’s credit!

The difference between pre-approved car loans and getting a loan at the dealership is that you avoid paying this fee!

When you are pre-approved the bank loans you a “fixed amount” of money and it’s your job to go out and find the vehicle you want and then negotiate the price down. This guarantees you the best price on the vehicle of your choice because you’re not paying the bank to assume the loan.

Getting a pre-approved car loan also means you can pick the vehicle YOU want. On the lot I worked at we often had 3 or 4 vehicles (usually the same models) that we knew would “fit” the banks parameters for people with bad credit. So when a person with bad credit came on the lot we would try to steer them to one of these cars. Not necessarily to make more money in OUR pockets, but because we knew that the buyer had the best chance of getting approved on one of those models because they would fit the banks guidelines and had enough markup to absorb the fees without losing money on the vehicle.

Getting a pre-approved car loan also keeps you from looking at vehicles that you won’t get financing for. If you are pre-approved for $15,000 then you won’t be out looking at vehicles that cost $22,000, wasting your time, and having your credit pulled multiple times by the car dealerships. Once you know how much you’re approved for you can find the best vehicle in that price range and negotiate with the dealership for it.

Bottom line - Being pre-approved for car loan a vehicle loan gives you more options and puts you in the drivers seat. You can negotiate for a good car deal and get the vehicle YOU want. So if you’re credit challenged and need a vehicle don’t go out looking for a car without applying for pre-approval first!

“I thought the website was a great help for me! I did have one question that I am hoping you can answer for me… I am just now 18 and I was trying to figure out some good ways to try to build up some credit to get a new car. Everything else I have found was not as helpful as this site, so I was hoping there was a way that you guys could give me a good honest answer to this question. Any help would be a great addition to what I have already learned here on your site. Thank you”

That’s a note from a young man who emailed us recently. I emailed him and answered his questions, but after thinking about it we decided it would make a good post for people who are looking to finance their first car.

Banks look at a few different things when deciding if you’re “trustworthy” enough finance a first time car through them. Credit score is definitely one of them. Other factors though are:

• Time on the credit bureau (how long have you actually had credit)
• Job history (At least 2 years of steady employement (even if you’re only 18)
• Income (must be $1200 a month gross, but $1500 to $1800 is better. That’s about $9.40 to $11.25 per hour, full time)
• Down payment (when you’re a first time buyer a down payment goes a long way towards showing the banks that you are a responsible person)
• How much do you want to borrow? (Even with $4,000 to $5,000 down it’s always best to try to buy a $10,000 or less car)

These things are true no matter how old you are. If you don’t have credit cards, and never finance anything, then you too can have a zero score, even if you’re 50+.

Now - the above list is just the “getting started” list for financing a car for the first time. Lenders look at a couple other things too:

• Can you prove where you live? (do you have legitimate mail coming to you. Preferably a utility bill - like your cell phone - with YOUR name and address. Not your parents)
• Can you afford the payments? You may earn $1800 a month, and live at home, and not pay rent or utilities. But over the next 5 years you MIGHT move out (at least I’m sure your parents are hoping you will). Then you’ll have rent, utilities, groceries, clothing, etc. etc. etc. So the bank is only going to want to you have a payment that equals MAX 25% of your paycheck. ($400).

Now - that’s the bank. But do you really want to shell out $400 of your hard earned money for the next FIVE YEARS? That’s a long, long time. Consider that when vehicle shopping and keep your payments as low as possible by not buying the “biggest, baddest” truck on the lot.

Another thing to consider is INSURANCE. If you’re a guy under the age of 25 your insurance is gonna be sky high on a newer vehicle. So price around for insurance FIRST before financing. Make sure that you can afford the payments AND the insurance - and that you won’t be eating canned tuna for the next 5 years to afford them!

Even if you earn enough money, have a down payment and a steady job the bank may still turn you down. Especially if you have NO credit history. So be prepared with a co-signer if at all possible.

A co-signer should be someone whose older (30+ years) and has established credit. The better the score the better the interest rate. If their credit is very, very bad then the bank probably won’t finance a car with them so try to find someone with a decent credit score (650 and above).

Once the loan is established remember this - Every on-time (or late) payment is recorded on BOTH your reports. So be kind! NEVER, EVER make a late payment. This person is going out on a limb for you and guaranteeing to pay the loan if something happens to you. So return the favor and keep their credit report clean.

The best way to get a car loan is still through pre-approval. Think about it this way. With cars and trucks going for $10,000 all the way to $25,000 isn’t it better to know how much you can afford before shopping? What happens if you find the “truck of your dreams” but it’s $20,000. That’s probably not a vehicle you can afford.

When you’re pre-approved you can shop with confidence. Find the ONE BEST vehicle that you like, negotiate the price, and go home with a smile on your face!

We hope this information is helpful. If you have questions like the one from this young man give us an email. Contactus@1-800badcredit.com

Good luck to you!

So your old car has finally bit the dust! You knew it was coming it was just a matter of when. The time has come to replace the old run down car with a new one.

Most of us have been there and done that so we can identify with your dilemma. However this situation is yours exclusively so you will have to answer certain questions to figure the next move. If it has been quite a while since you went car shopping you may suffer “sticker shock” when you shop. Let’s see if we can help you make this easier. After all life is hard enough without any extras thrown in!

If it has been awhile since you filled out a credit application here are some things the lender will be checking.

• Your credit score
• How much money you make
• Where you work and how long you’ve been employed there (two years of steady employment is what they are looking for)
• Your current credit cards and their balances according to the credit report
• How often you make on-time payments vs. 30, 60, 90 days late – and how recent were the late payments
• Whether you own your home or rent

The first two things are easy to prove. If you don’t know your credit score you will want to find out so you won’t be surprised or embarrassed. You should order a copy of your credit report to check for errors and fix those. There are three agencies (Equifax is the largest) that gather data from creditors. This information is then used to tally your credit score. They use a complex system and we explain that on our site . But the credit agencies make mistakes - sometimes lots of them - so you need to check your report for these errors.

We strongly advise getting pre-approved for your loan unless you like the headaches associated with shopping for a new car. Being pre-approved guarantees the amount of the loan and also guarantees the interest rate you will be charged. Then when you go shopping, tell the sales consultant how much you are approved for (and stick to it) because they will try to talk you into something that costs more money and of course a higher rate of interest if they arrange financing and higher monthly payments because they will make more money on the deal.

Check your local paper for pricing and the internet, but be sure to get pre-approved first so you will know how much you can afford.

Study our articles on car negotiating and verbal sales tricks that dealerships use to confuse you and get more money from you. (Car Negotiating Verbal Tricks) (Car Negotiating The Four Square)

So you need a new car but think you can’t get one.

Why not?

A friend of mine said that to me the other day and that’s exactly what I asked him – Why not?!

He and his wife had been late on a couple of credit card payments and he thought that this would make banks “laugh him out the door.” Not wanting to be humiliated he was not even willing to try.

If you are in the same boat, “let not your heart be troubled.” We have some great news; you can qualify for the car of your dreams and not break the bank to do it.

Here’s some simple steps to help you get the best deal on your next new vehicle.

Order a copy of your credit report. That’s not earth shaking news but that is the first step. You have to know where you are in order to know how to get how to get where you want to be. Order one here for free: Click Here.

All right, you have your credit report – what do you do with it? You carefully read it and check it for errors. Nearly 80% of credit reports contain errors; which means yours has a very good chance of having mistakes. Look for the most common mistakes - creditors paid off that still show as open, accounts that are not yours, loan balances or amounts owed that are not correct.

Highlight the errors. I love highlight pens; they are wonderful. Highlight anything that is wrong. You have the right to challenge anything that you feel may be inaccurate, untimely, misleading, biased, incomplete or unverifiable (questionable items). If a credit bureau can’t verify the accuracy of a disputed listing, then it must be removed from your credit report.

There are two approaches you can take next. If you are in NO HURRY you can write and challenge every questionable item and wait because this will take some time. The reporting agencies receive thousands of letters and from the time they write to the lender you are challenging there will be at least a 30 to 45-day period. You may or not get the item corrected. OR YOU CAN TAKE THE 2nd OPTION.

You can hire a professional law firm to dispute and have them removed for you. A law firm carries more clout than you or I do as individuals. PLUS they guarantee results. We have thoroughly investigated this field and know that there are many companies willing to take your money - but in the end you get absolutely nothing in return. That’s not the kind of credit repair we are talking about. We are talking about guaranteed results from a major, reputable law firm – period! That’s why we recommend (and ONLY recommend) Lexington Law .

Now that your credit is clear of errors, it’s time to get financing for your new vehicle.

There are several ways to get financing for a new or late model car. But let’s just look two for the sake of time.

Walking into a dealership and applying for financing after you’ve selected a car. This is the #1 way to guarantee that you’ll pay more interest than you have to! As ex-car salespeople we know all the tricks a dealership will try to pull. From lying to you about your credit score (because they get a percentage of the interest rate, so the higher the better for them), to telling you that you’re “approved” when in fact, you aren’t! (After you leave the dealership they’ll send your information to all the major banks and hope one approves you. Then they call you back to ‘resign” the contract and often your payments are $50 or more higher than you originally agreed to!)

The way to guarantee that you are getting the best deal is to be pre-approved for your loan first. With pre-approval you know exactly how much you are approved for, take the check to the dealer of your choice, make your selection and drive out. With this system, and it’s so simple you will wonder why you didn’t think of it yourself!

Major Tip: Don’t let the dealer tell you they can get you financed for more car! Remember they have a vested interest in the deal and they are NOT looking out for you. Once you’re pre-approved shop within your budget. Try it – apply for pre-approval now!

We have already written on how to avoid getting caught in an upside down car loan and ripped off at the car dealership – see “You Can Get A Bad Credit Auto Loan, But What Then? Know Your Stuff Before You start shopping !” This article and others like it are on our website and blog and we hope you will read them before you purchase your next vehicle.Since both my daughter and I have sold cars and have seen the problem from the inside we know, you can’t say too much” about this problem.

Of course one of the very best ways to get the best rate on either a new or used auto is to be pre-approved BEFORE you go car shopping. This is important because it puts you in the drivers seat as far as interest, amount of the loan etc. All the factors that can cause you to have an “upside down car loan.”

“Upside down” is the term car dealerships use when you owe more money on your car than it is currently worth. Everyone knows that a new car depreciates when you drive it off the lot - and we accept that - but you should not pay one penny more than you have to in either value or financing!

With any kind of new loan, whether home or auto, the borrower is paying more on interest than on principal for the first two or three years. That’s just a fact you can’t avoid. If you start out owing $20,000 on a car loan and are making $500 payments, the interest each month for the first year or so is $300 or more, so less money is applied to the actual amount borrowed during this period. Hence, having an “upside down car loan.”

While everyone is upside down the first year or so, we’ve both seen people 3 and 4 years into a loan and still severely upside down. Why? Because they were so enthralled with the “something new and shiny” syndrome that the salesman was able to convince them to buy that new car before they really sat down and thought about it.

There are several ways you can keep this from happening to you.

Before you go shopping know how much you can afford per month and the type of vehicle you want. Do your comparative shopping on the internet ahead of time so you are educated on pricing.

Contact a lender and get pre-approved for the loan. We have lenders on our site that will pre-approve you then give you a blank check and a letter to take to the dealer.

To avoid becoming “upside down” on any loan it is best if you can put at least 20% down. This will probably mean that you purchase an automobile lower down the food chain than you really want. A $25,000 car would require $5,000 down to accomplish this but a $12,000 car would only require $2,400 down. If 20% is not possible get as close as you can.

Down payments also “pre-purchase” the warranty and gap insurance so that they aren’t part of the payments. This way you are ONLY paying on the car, and not on those extras that don’t really ad value to your car, but are important to have.

Finance the loan for the shortest time you can afford. I can personally remember when 60 month loans were becoming popular. Now of course they are longer which keeps you in debt longer. If you are not pre-approved a lender will often try to “trick” you into stretching your payments out longer to make them smaller, when what you really want is for the lender to lower the price of the car to make your payments smaller!

Give serious thought to GAP insurance. GAP insurance covers the difference between what you owe and the car’s blue book value in case of an accident that totals the car. So if your car is worth $10,000 and you owe $12,000 you are on the hook for the remaining $2,000 when the insurance pays you off and that could be huge!

Consider purchasing a used car instead. Since most of the depreciation has already occurred your car will hold its value longer. You can qualify for a pre-approved used car loan just as easily - as long as the mileage is 50,000 or less. A car that sold new for $17,000 will sell 1 to 2 years old for $13,000 used which is much closer to it’s true, current value.

Sell your old car yourself instead of trading it in. If you can afford to wait for the money you can usually get more on the street than you will at a dealership.

The biggest way to keep from being upside down on a car loan is pre-approval . That makes all the difference!

By Dewey Kearney

You’ve just learned that your request for an auto loan with XYZ Bank has been denied. The loan officer explains that the decision has to do with your credit score . XYZ lends only to prime borrowers; your credit score, she continues, places you squarely in subprime territory.

Subprime. You’re not sure exactly what it means, but it sounds like a condemnation that will forever brand you as being somehow deficient to lenders.

However, being deemed subprime doesn’t necessarily mean that your borrowing days are over. It may still be possible for you to get that sought-after car loan. That’s why you should be pre-approved before you go car shopping. Being pre-approved means that you can confidently walk into the dealership knowing that you are in control of the financing not the dealer. You will know what price range you are approved for ahead of time. Of course you will want to leave room for tax, licensing and gap insurance. The dealer will try their best to move you into a higher priced car and handle the financing for you – beware! That’s in their best interest, not yours.

But first you need to understand the term that defines you. A subprime borrower is one with bad credit. Each lender has its own definition of what constitutes a subprime borrower, but typically, a credit score of less than 620 lands you in this less-than-desirable category. For more information on credit scores, and what sort of factors cause them to suffer, please see our article on how credit works . There are plenty of credit lenders specializing in subprime lending who are eager and willing to loan money to those with bad credit. Naturally, though, there’s a catch. The interest rates for subprime borrowers are higher than if you have pristine credit – but it is not un-affordable.

So, now that you understand what your playing field looks like, how can you finesse the game in a way that gets you a reasonably priced car loan? Here are a few tips:

Check Your Credit Report

Make sure that everything on your report is accurate; it could be that information has been entered in error, and that your credit history is a lot less blemished than you’ve been led to believe. If you do find information on your report that is inaccurate, you need to address it right away. Contact the credit bureaus in writing, listing your name and address and clearly detailing the nature of the error. Access Your Credit Score For a long time, credit scores were available only to prospective lenders, who used them to evaluate those seeking loans. That has changed; it’s now possible for consumers to access this all-important number. Your score is available online from each of the three credit bureaus: Trans Union, Experian and Equifax. If you’ve got bad credit, it’s helpful to know it beforehand. Knowing your credit score will help give you a sense of exactly where you stand in your search for an auto loan.

Don’t Rely On The Dealer

Dealers take a cut of all car-financing deals they land; as a result, any loan that they’re able to get you with a bank or financing company is likely to wind up being more costly to you. Get pre-approved (not the same as pre-qualified) for your loan first. Ideally, you’ll want to secure your auto loan before setting foot inside the dealership.

Remember That Your Credit Score Is Malleable And Ever Changing.

When it comes to your credit history, the ball is entirely in your court. You can improve your bad credit by paying your bills on time, and not overextending yourself when it comes to loans and credit cards. If you have items that are out-dated or incorrect on your credit report these can be removed legally . With proper attention paid to the state of your credit, you could conceivably hoist yourself out of subprime territory in as few as two or three years. Going forward, check your credit score at least once annually. You may have to pay more than you’d like for the auto loan you’re about to receive, but in a couple of years, if your credit score has improved, you’ll probably be able to refinance your loan at a much lower rate.

By Warren Clarke, Automotive Content Editorwww.edmonds.com