The
total would be $75.00 but what if you owe on an education loan but
haven’t started paying on it yet, the banks will take out 3% of the
total amount owed (assuming you will be paying this during the course of
your auto loan)
$5000.00
education loan x .03 = $150.00 per month
Your
debt so far would $225.00.
Now,
if you have a mortgage payment in your name this amount would already be
included with your credit cards and other debt that shows on your credit
report. However, if you
rent or living with family, generally they will subtract at least
$300.00 for rent unless you entered in a specific amount above that.
Even if you state you pay $0 (such as living with relatives,
friends), they still will subtract $300.00 unless you have proof of a
home you reside in is paid for.
Note:
This would include your utility bills as well.
Your
debt so far would be $225.00 + $300.00 = $525.00
Depending
on the finance company, they may consider food/living expenses such as
gas and maintenance on your vehicle, which could be a minimum amount of
$75.00.
Your
debt so far would be $525.00 + $75.00 = $600.00
Car
Insurance is also included of $50.00 to $100.00 depending no the bank
since it is mandatory to have full coverage on the vehicle during the
course of the loan.
Your
debt so far would be $600.00 + $100.00 = $700.00
In
the beginning, we stated that your bills could not exceed $1040.00 and
by subtracting $700.00, this would leave you with $340.00 left available
to make your car payment. However,
banks can take other factors into consideration not stated here.
50%
of your gross monthly Income $1040.00 – Total Debt of $700.00 =
$340.00 Maximum Payment
Down
payment
Generally,
people with bad credit may be required to put down $1000.00 or 10% in
order to get financed for a car loan however
However, remember that the dealer wants to sell the car and they will
generally work with you if they want to get a deal done. However, if
they cannot work with you and you are required to put money down to
purchase a car, you can always applying for a pay
day loan. There is no credit check so
your
past credit history does not impact the loan approval process. All you
need is an income of $1000.00 a month, a checking account and be at
least 18 years old. You can have the money deposited into your account
by the next business day.
References
The
last thing that they will want you to bring is at least 6 references to
include their name, address, and phone number where they can be reached.
Co-signers
One
of the best ways to improve your chances of being approved for a bad
credit auto loan is to have a co-signer. The co-signer is liable for the
payment of the loan and will have to pay if you default. Because the
co-signer is liable, his or her good credit will help you to be approved
for the loan.
People
that apply for a bad credit auto loan are doing it because they want to
find out if they can get approved whether they apply online, go to the
bank or a dealership, there is always someone willing to approve your
car loan. If you get turned down, find out what the reason is
because you may be able to correct the problem.
Past
Due Accounts
Make
sure that any car loans and/or mortgage are paid on time. Generally, you
will get charged a late fee if you pay a day after your due date however
they could give you as much as 10 or 15 days before charging a late
fee. More importantly, always make sure that you make your payment
before it becomes 30 days past due to avoid having it reported to the
credit bureaus.
If
you are having a problem making your payments, its always a good idea to
discuss your situation with the bank to find out what options may be
available to you. Many banks are able to offer you a deferment which is
an interest only payment and the principal is added to the end of your
loan, change your due date or they may even be able to refinance your
loan with them. Many people avoid being late on their payment by simply
trading their car in since it could take up to 2 months before you have
to make your first payment on the new car loan.
If
you owe federal/state taxes or child support, make sure you make
arrangements to pay it. Banks are almost unwilling to consider approving
you for a car loan if you owe either of these.
Medical
Bills such as doctor, dentist, and hospital that have not been paid will
show on your credit report however it is not a high priority to pay
these in order to get approved for a car loan. The monthly premiums and
high deductibles health insurance providers set makes it impossible for
someone to be fully covered. The banks can sympathize for whatever
reason that you were not able to pay your medical or dental bills.
Banks that help people with bad credit tend to look away when they are
making a decision on your auto loan.
Insufficient
Credit File
The
banks consider you as a high risk especially if you haven’t paid
anyone before so its always a good idea to immediately get a credit card
to start such as Capitol One (secured credit card if necessary), get a
checking account established or even a Rent-to-Own account since they
report to the credit bureaus too.
Another good way to establish good credit is if you are an authorized
user on someone else's credit card account. Even though credit bureaus
aren't supposed to be reporting the payments on your credit bureau if
you are only an authorized user however they generally do. If for some
reason however the payments are paid late, you can quickly have the
account removed since it shouldn't have been on your credit bureau in
the first place.
Consumer
Credit Counseling
Any
types of debt repair programs can cause you a lot of headache.
Unfortunately, if you have already started with a program such as
this, you will need to wait until you have 6 months or less left to
complete the program before you can apply however there are some
banks and finance companies that may approve you as long as you
have a letter from Consumer Credit Counseling or any other similar
programs stating you are able to pay for the auto loan.
Charge
Off or Collection Accounts
If
you decide to pay a charge off or collection account, make sure you and
the creditor both settled on an amount to be paid in full.
Upon paying the account in full, require a letter from them that
by accepting the offer they will permanently take off the charge off
account/collection account from all 3 credit reporting agencies.
Typically, the account will show on your credit report as a
“paid charge off” or “paid collection account” if it isn't taken
off your credit report however it isn't going to help you get a car loan
or improve your credit report. A paid charge off account or paid
collection account is still considered a delinquent account.
They do not give you credit for it being paid off which is why it
is vital to have it taken off permanently from all major credit bureaus
and by doing this, it will improve your credit score. Remember,
that all accounts that are delinquent, collection or charge off will
stay on your credit report for seven years which starts from the first
month you were delinquent on that account.
Repossessions
If
you had a vehicle repossessed, the general rule is that it must be at
least a year old before you are able to finance a new or pre-owned
vehicle. However, there
are finance companies that will approve you even if you just had your
car repossessed the day before but they only work directly with the
dealerships and internet companies! There are buy here, pay here
car lots that will finance you however they charge a considerably larger
interest rate and many do not report to the credit agencies.
Bankruptcy
If
you decide to file Chapter 7 bankruptcy and intend on applying for a car
loan, make sure you either apply before you start your bankruptcy or be
able to wait until after the bankruptcy has been discharged which
normally take 3 months to complete. Most banks or finance
companies will not consider approving you for a loan until your
bankruptcy has been discharged.
If
you decide to file Chapter 13 bankruptcy, you are paying off your debt
without getting hassled by your creditors in a period of time you can
pay them. However, this
means that it could take years before you actually pay everyone off and
in the mean time you are restrained from purchasing anything on credit.
Regardless
which bankruptcy you choose to file, it takes 10 years from the time it
is discharged to be removed from your credit report. However, bad
credit such as charge offs or past due accounts will report to the
credit bureau for seven years.
Going
to the Dealership
When
you are ready to go to the car dealership especially when you have bad
credit can be frustrating because your options are limited when it comes
to picking out a vehicle. However, when you first arrive at
the dealership, don't spend a lot of time finding a vehicle unless you
know that you can get approved first since its up to the lender how much
they approve you for and what exceptions they will grant. The last thing
you want to do is spend hours at the dealership looking for the perfect
car and then find out that you are not able to get approved or get
approved for less money with restrictions.
Cars,
especially new ones, depreciate (become less valuable) very quickly. In
other words, a new car may suddenly lose $2000 in re-sale value the
moment you drive it away from the dealer. Also, keep in mind that
during the early part of the repayment period, most of the payments are
consumed by interest charges, so the consumer's equity will grow very
slowly. The loan often is much greater than the wholesale value (based
on year, make, model, options and miles) of the car so refinancing may
be out of the question for the first couple of years or longer of owning
the vehicle. If you are thinking about refinancing your vehicle or
trading it in within the first couple of years, make sure that your LTV
(loan to value) doesn't exceed 150% otherwise chances are of doing
either are less than likely.
Previously,
every time your credit report was pulled, an inquiry would show up on
your credit report and would lower your score very quickly.
However, that isn't the case any longer as long as you're shopping for
the same type of loan within a two-week period. For example, you
found a car you liked at a local dealership so they pulled your credit
report to determine which lenders they are going to fax your
information. They fax it to 3 different lenders to see who will
approve you with the best interest rate, highest amount, longest term
and smallest down payment required. Of course, all 3 lenders will
have to pull your credit report also however after the first dealership
that pulled your credit report your credit score won't be affected no
matter how many times a bank, finance company or a dealership pulls your
credit report.
Usually,
a dealership can submit your application to a lender without a specific
car in mind in which they will approve you for:
The
Total Purchase Amount - this can
include the price of the vehicle plus tax, title, warranty and any
insurance you decide to purchase which includes disability, life or gap
(optional)
Payment
Call - this is the maximum monthly
payment that they decide you can afford to pay based on your debt to
income ratio which will vary between lenders however typically it is 50%
The
Interest Rate - The lender will approve
you for specific interest rate which depends on your credit score.
Generally, the lower your score is, the higher your interest rate will
be. However, you can still negotiate with the dealership on the interest
rate because it is not a fixed rate. Most of the time the
dealership will give you a higher interest rate than what the bank
approved you for. This is how the dealership can make a lot of
money from you when they sell you a vehicle. However, this rate can
still be lower than going to another dealership that uses the same
lender or getting a loan directly with that lender yourself. A
dealership that sends 75% of their business to a lender will more likely
approve a loan or approve exceptions for a loan than a dealership that
sends only 25% of their business to the same lender which are called
indirect loans. Some lenders will provide loans directly with the public
which are called direct loans. This type of loan will allow you to
purchase directly from a dealership or through a private party.
However, it is difficult for someone with bad credit to get approved for
that type of loan.
Every
state has a maximum interest rate they are allowed to charge and
sometimes it makes it harder for the consumer to qualify for a car loan.
As an example, Arkansas has an interest rate cap of 8%, which
means that unless you have perfect credit you might as well forget about
getting a car loan. Traveling
to a neighboring state such as Texas, Tennessee, Missouri, or
Mississippi is the only way that customers looking to purchase with less
than perfect credit can purchase.
Term
of the loan - The make, model, and year
of the vehicle will determine the term (how many months) the bank is
willing to finance on the loan however in some cases how many miles on
the vehicle may also effect the term. For example, the average miles a
used vehicle should have per year is 15,000 miles according to Kelley
Blue Book which determines the wholesale value of a vehicle. If
you choose a vehicle that is 2 years old with 50,000 miles on it,
chances are the lender will shorten the term of the loan since a vehicle
with higher miles has a greater chance of breaking down. This
could lead to money out of your pocket for repairs and as a result not
being able to pay your car payments.
The
Extended Warranty
-
This is optional for anyone purchasing a purchase a used car.
However, it is something that you should purchase because there is no
way to know when or if the car you purchase will break down. Usually,
warranties cover pretty much everything as long as you keep up the
regular maintenance of the car such as oil changes and tune-ups. For
example, the transmission could go out on the car and that could cost a
small fortune.
With
the extended warranty, there are different types of warranties you can
get that depend on how many years it will cover, miles, and what parts
it covers. However,
the important thing to remember is this is not a fixed rate either which
means you can negotiate the price of the warranty with the dealership as
well. A dealership can make a huge
profit from selling you the extended warranty. You can figure out
approximately how much the car dealership is paying for the warranty by
taking half of the price they try to sell it to you for. Only negotiate
the price of the warranty after you have negotiated on the price of the
car, the trade in (if you have one) and the interest rate. If a
car dealership loses money on selling the warranty, they definitely will
try to add that amount somewhere else in the car deal.
Approve
My Auto Loan Now
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