Jumat, 20 April 2012

Auto Loans With Low Credit Scores: How Best to Secure Approval


Buying a car can be an expensive business if the right loan with the right terms and from the right lender is not secured. But when bad credit is mixed into the equation, simply getting a loan can be the most difficult aspect. This is because, for most traditional lenders, granting auto loans with low credit scores is too great a risk.

But there is a way to convince lenders to take that risk, and for bad credit borrowers to protect themselves against unnecessary charges and hidden fees. Knowing how to prepare and what details to look out for is the surest way to secure loan approval with bad credit.

There are some steps that everyone seeking an auto loan should take to improve their chances of success, especially when they are without the benefit of a high income and excellent credit history.

Know Your Budget

The first step to buying a new car is not in selecting the car. Knowing your budget in advance is more important, since it is this that decides what car is affordable. This is particularly important when seeking auto loans with low credit scores, where approval rests on proving repayments are affordable.

So, make a careful note of all of the existing debts already being repaid, as well as the general monthly outgoings, and compare that figure with the monthly income. This will reveal the excess income available. If the loan repayments are limited to 40% of this figure then approval with bad credit is very possible.

The 40% limit relates to the debt-to-income ratio lenders apply when assessing applications. With a realistic budget calculated, it becomes easier to find an auto loan that is affordable and, therefore, more likely to be approved.

Consider Sub-Prime Lenders

Choosing the right lender is important, but for those seeking auto loans with low credit scores, the challenge of getting approval is more difficult. Traditional lenders tend to be hesitant, so there is always uncertainty surrounding the application. But subprime lenders are much more likely to ignore bad credit histories.

Of course, there is a compromise to be made in that the interest rates charged are higher. The reason is that subprime lenders are at a greater risk of losing on the deal because they are willing to grant approval with bad credit.

Higher interest might be enough to seek an alternative option, but since these lenders boast a high approval rate, they also offer the surest route to securing the funds needed. The importance of proper budgeting comes into play here too, but the auto loan is at least more accessible.

Compare Before Choosing

A third wise move when applying for auto loans with low credit scores, is to take time to learn the details of the loan agreement before deciding on the lender to apply to. The Internet is a great resource when it comes to finding excellent deals, but hidden charges and penalties can mean a loan is not as great a deal as it first seems.

Certainly, it is better to secure car financing independently from the car dealers from whom the car is purchased. But the amount of options online means some care is required before choosing a lender.

If applicants check the small print for pre-payment fees and other penalties first, then getting approval with bad credit is more likely to be the benefit it promised to be. But, be sure to check the reputation of the lender first through the BBB website before applying for an auto loan.

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