How to Get an Auto Loan with Bad Credit
Getting approved for an auto loan with bad credit, meaning 600 FICO or below can be difficult but not impossible. There are several mitigating factors that can help you increase your chances of approval and even get decent terms, and FA Financing can help you buy a car even with bad credit.
Down Payment When Buying a Car
Buying a car with bad credit is tough, although many shoppers like to get by with minimal down payment, that is not always an option, especially with a used car and bad credit. Lenders want to see some commitment on your end, especially if you have a spotty history of paying your bills. Lenders essentially want to see some “skin in the game,” on your part. The reason behind this is statistically speaking, the more money you put into the car, the less likely you are to walk away from it. Fun fact! With a big enough down payment, you can sometimes even bully the lender into getting you a better interest rate regardless of your credit! Let’s look into the next factor lenders value.
Job History and Current Employment Can Trump Bad Credit
When your credit isn’t something to brag about, lenders look at your place of employment and how long you’ve been employed there. Buying a car with strong employment is very beneficial. Employment history of 3-6 jobs within a year is frowned upon because it shows a lack of stability and is a red flag of someone not being able to hold a job down, thus a risky customer to loan to. On the other hand, someone who has been employed for 10 years + for the same employer is very appealing to lenders. It shows stability, consistency and provides a very high chance the buyer will have no issue paying his bills. While the type of work you do can affect your approval chances. For example, one bank FA Financing works with has a horrible history with painters not making their monthly payment… the job length is much more important on whether a bank will finance you. The final aspect to consider is the type of vehicle you are financing.
What Type of Vehicle to Apply For is Just as Important as Credit
You want to go for the collateral (vehicle) that is as new and has as low of miles as you can budget. From a lending perspective, financing a newer economic sedan with less than 100,000 miles is much more appealing than financing an older high mileage German sports car. This is the case for several reasons. First, banks look at the longevity and residual value of the collateral. A lower mileage, newer vehicle is much less likely to break down and have mechanical issues which banks highly favor. Many customers eventually give up their vehicles if there are too many mechanical issues which is unfortunately still considered repossession. Repossessions are the biggest detriment to getting a future auto loan and always lead to bad credit. The other reason you want to look for a late model vehicle is a bit ominous; the lender is hedging itself in the case they must repossess your vehicle and sell it to get their money back. Newer vehicles with lower mileage are much easier to sell at the auctions than older high mileage units and give the bank a higher chance of getting their funds back in case they repossess your vehicle.
How FA Financing Can Secure an Auto Loan with Bad Credit
Overall, when car shopping with bad credit it’s always best to have a big down payment. You want to have at least 10%-20% of the sales price but 30% or more if you want a really good deal depending on the vehicle. FA financing understands this can take some time to save up for, so we offer deferred payment plans to help get you rolling TODAY! FA Financing also recommends having at least 6 months or more with your current employer. No worries if you have been at your employer a shorter amount of time, our finance managers have great relationships with lenders to still get you approved. One final consideration is to skip the high mileage BMW or Benz and go for the newer low mileage economic option (Although if your heart is set on it, we can still make it happen). FA Financing recommends you wait to get that nice import you dreamed of when you get your credit back on track, which we’ll go over in the next article.
