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!

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

From ABC Loan Guide, for About.com By Karen Schweitzer

When your credit is less than perfect, finding a car loan with reasonable rates and terms can seem like a bit of a challenge. However, getting a bad credit car loan may be easier than you think — especially if you shop online.

Why Shop Online

If you get a bad credit car loan straight from the dealer, you could end up limiting your car buying options. Dealer financing will also leave you saddled with high interest rates. By getting a bad credit car loan online , you have a better chance of getting a fair rate. This is because the online market is so competitive. There are tons of companies who are all vying for your business. They are willing to offer you low rates, reasonable terms, and minimal lending fees. And, best yet, they won’t think twice about your bad credit.

Finding a Bad Credit Car Loan Online

The biggest advantage to shopping online for a bad credit car loan is the convenience and you can be pre-approved before you go shopping. The advantage of pre-approval is this places you in the drivers seat as a cash customer. You can get a free rate quote from one or more lenders in a matter of minutes. Applications are simple to fill out and most online lenders are quick to answer any questions you may have.

People always think about financing too late. They wait until they are ready to head out the door, keys to their old beater car in hand, to drive to the dealership and “shop” for a car. They tell themselves, “I’m just looking today. I want to see what’s out there in my price range.” Without giving any thought to what their “price range” might be!

In fact, for most people “price range” isn’t even accurate, “payment range” is better. People always have an idea of what “payment” they want, and don’t really understand how payments vs. car price work. And that’s where the dealership gains the advantage and can sucker you into a vehicle that costs way too much, with payments that are stretched way too far. Especially if you’re in the market for a bad credit car loan!

As a former car salesperson I sold vehicles with 84 month payments, and one time I sold a car with 92 months! That’s 7.5 years! Why did I do this? Because stretching the payments that long fit my customers budget - and I therefore sold a car and earned a commission. Make no mistake about it. Salespeople have to put food on their table and clothe their kids just like you do! And if that means stretching payments to hold profit on a vehicle then that’s just what they will do! They ARE NOT on your side.

As a salesperson I found, more often than not, it was mostly about the look and feel, and a lot less about the price, for most buyers. By shifting focus OFF the price and ONTO the eye-popping fun features, I was able to make them practically drool for the car, and then it was only a hop and a skip to the next step of “bumping” them up $50 or more than what they originally “budgeted” for in payments.

Pre-approval is what keeps you and your emotions in check. It helps you focus in on the most important thing – how much does the vehicle cost. It helps eliminate the “drool factor” from car buying and keeps you in check so you don’t get suckered into 92 month payments!

Pricing new cars is the simple part. Shopping online is easy. Most dealerships have websites that list their inventory and pricing.

Before you even get to the dealership, or apply for a loan, you should always begin by checking your credit report . I saw many salesmen and managers that would tell the customers outright lies about their credit score in order to bump the interest rates or payments on a car. So pull your credit first!

Once you know your credit score you can apply for a car loan and get pre-approved . Pre-approval is the absolute simplest way to purchase your new vehicle. It tells you how much you can finance, and gives you approximate payments. This way you can shop for the best vehicle that you can afford! Instead of honing in on the biggest, shiniest vehicle on the lot – and getting suckered into payments you can’t afford.

If you have questionable credit and you go to a dealer without being pre-approved, then you are setting yourself up to get ripped off. The dealer will have a million and one reasons why you will have to pay such a high interest rate. It’s true that a person with bad credit will have to pay more than someone with sterling credit - but if you can save 2 or 3 percent you can save between $150 and $200 per month. Quite a savings!!

With Pre-approval you will have the check in your hand ready to endorse to the dealer. Expect them to try to play some games to get you to pay more, just stay the course and you will drive out with a car you can be happy with AND can afford.