Turned Down?

People that apply for a bad credit auto loan are doing it because they want to find out if they can get approved with the best interest rate and the highest loan amount.  Usually, someone with bad credit will submit their application to their local bank, finance company and visit a couple of dealerships.  They are told they can't qualify for a car loan and should expect to receive letter in the mail within 30 days explaining the reasons why they got turned down.  However, they quickly make the assumption that they can't get approved for a car loan anywhere. Never Assume!! There is always a bank, finance company, or dealership that will approve your car loan nationwide.  The key is finding out where to go.  

Past Due Accounts

Make sure that accounts you pay such as your current car loan is up to date and your mortgage.  The bank looks at it as if you can't pay your bills now, why should they take a risk that you would pay them.

Any past due accounts that are paid within 30 days of the due date will not show up on your credit report as 30 days past due.  

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. 

It's easier to purchase a house than a car.  

Why?

You can hide a car but you can't hide a house!

Insufficient Credit File

If you have no credit at all, 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 will help you establish your credit since they also report to the credit bureau.  The banks consider you as a high risk especially if you haven’t paid anyone before.

Consumer Credit Counseling

Any types of debt repair programs can cause you a lot of headache.  banks or lending institutions may require a letter from Consumer Credit Counseling or any other similar programs stating you are able to pay for the auto loan .  Unfortunately, if you have already started with a program such as this, you will need to wait until its completed before getting any kind of loan at all or  6 months or less until your completed with the program.  If you are involved with a program such as this, beware that they made an agreement with the creditor to make a specific monthly payment until paid in full.  However, the majority of the time, it will be less than your normal payment and will show on your credit report as 30 to 60 days past due until paid in full.  This does not help your credit situation other than someone else has been making payments for you that you could have done yourself.

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 off all credit reporting agencies 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. However, it is up to the company to report to one or all three credit reporting agencies which is why that you will rarely get the same score from all 3 credit agencies.     

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.  In many states, however, there are buy here, pay here car lots that will finance you but with a large interest rate which many do not report to any credit agencies.  It is generally a good idea that anyone you make monthly payments to report  to the credit bureau.  There are finance companies that will even approve you even if you just had your car repossessed the day before!  However, they only work directly with the dealerships.   

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.