If you need to purchase a car but you have bad credit rest assured that bad credit car loans are available from reputable lenders. When seeking this type of loan the best strategy is to put yourself in the lenders shoes… would you trust yourself with a loan? Also, be prepared to make the distinction between the car you want and a car that will do the trick.
Bad credit car loans will most likely have a bigger interest rate and possibly a more strict set of penalties for late and missed payments. You are already a risk in their eyes therefore you really have to toe the line to keep the process moving smoothly. Your best tool for this will be information, more specifically, information about you as listed on your credit report.
Know the Score
Your credit report has financial information on you dating back 10 to 20 years depending on how you have conducted yourself. All of this information is tallied up and the result is what is known as your FICO score. A FICO score of 600 is the lowest most lenders will tolerate. Another piece of information used to decide whether or not you are loan worthy is what is called your “debt to income” ratio. This ration takes into consideration how much debt you have now and how much you pay each month on these debts then compares it to your monthly income. A forty percent debt to income ratio is OK for someone looking for bad credit car loans, this means that for every hundred dollars of income you have per month, forty dollars goes to paying off your current debts. The higher your FICO score the more debt to income you can have and still qualify for the loan.
The next variable to work out is the “loan to value” ratio. The loan to value, or LTV, is the ratio of the amount of money you will be loaned compared to the price of the car you are going to buy with the loan. Bad credit car loans will usually require a LTV of 140% or less. If your FICO score is less than 600 you may be able to get away with an LTV of 125% but you will then need to put forth a substantial down payment. Your down payment should be at least $1000 or more depending on the sticker price of the car.
How Much Car Is Your Social Life Worth
A common mistake that is made is many people have their hearts set on a particular type of vehicle even though it may well be beyond their means to afford it. Also, many car sales people will sell a customer more car than they need in order to gain a larger commission. It is very easy to be swayed by the shiny new car or the flamboyant sales pitch and to forget about budgets and all the other things we do with our hard earned cash. Buying more car than you need could be detrimental to your lifestyle as you will find yourself penniless at the end of the month and will have to forgo the night out with your pals or dinner at the restaurant or many other things that make up a normal social life.
Everyone needs a car. Yes, there are several cities that provide great public transportation and although they have large populations, most people do not live in these cities. Bad credit car loans may be the only means for many people to procure a reliable way to get to work. One other plus is that these loans, like any loan, when paid on time also provide a means to get your self out of the bad credit sector.
You hit the nail on the head when you said that you don’t need more car then you and afford. To often people want what they can’t pay for and still have some kind of life. anyone reading this, listen to the man you don’t need that $40,000 car when your trying to dig yourself out of a hole.
Thanks for the post. Great stuff.