Car Choice Comes Last for Bad Credit Buyers

Here at Youautomotive auto loans, we often receive comments from consumers who are looking for their next car. Typically, people who are looking for an auto loan tend to pick out a car first and look for financing second. This process may work for someone with good to great credit, but for many people—especially those with bad credit—the process works differently.

 

Take this customer who recently wrote to us about finding a vehicle:

“I'm looking for a dark purple car would love to get Camaro but I would be willing to get a different model like Impala or even an SUV but I can't afford a new one…”

To be clear, we are not a car finder or a finance company. We help people with bad credit get connected to local special finance dealers who can help people get the vehicles they need.

Why the Bad Credit Process is Different

Wanting a particular car is one thing, but when you have damaged credit, it's more important to get what you need—or what you can afford—rather than trying to find the exact car you want. This is due to the fact that when you are looking for financing with bad credit, you first have to get an approval from a subprime lender.

Subprime financing is typically needed when you have a credit score around 640 or lower. This type of auto loan is done through indirect lenders who work with special finance dealerships. Not all dealers have subprime lenders, so choosing the right one to meet your needs is important. Once you have found a dealer with a sub prime finance department, you will need to sit down with the special finance manager, fill out an application and submit the necessary documents.

You will need to provide:

  • A valid driver’s license or state ID.
  • Proof of income – your most recent check stub.
  • Proof of residence – a current utility bill in your name.
  • Proof of a working phone – a landline or cell phone from a national carrier, in your name.
  • Six to eight complete references – including names, addresses, and phone numbers.

Once you have completed this process, the dealer will transmit your application and documentation to the lender. The lender will either approve or deny your loan request. If you are approved, the lender will transmit a “payment call” to the special finance manager with the program you qualify for along with any additional requirements.

Choosing Your Vehicle

Once the lender has approved your auto loan request, the dealer will present you with a list of eligible vehicles that you qualify for, based on the information from the lender. Then, you can test drive them and choose the one you like that best fits what you need.

The good news is your choice of vehicles will typically be restricted to those that are less than 10 years old and with less than 100,000 miles. It is also good to note that your loan term can vary depending on vehicle mileage and model year.

As you can see, when you are dealing with subprime financing, choosing a vehicle comes at the end of the buying process, rather than the traditional loan process where you choose your vehicle first, then get financed.

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Arm yourself with knowledge when shopping for an auto loan



Companies, such as dealerships or other lenders, may offer military rates or discounts to bring you into the showroom, but that doesn’t mean the financing offer is the best one you can get.  We’ve also heard that some companies may inaccurately promise benefits under the Service members Civil Relief Act (SCRA) to military customers. If you move and need a vehicle right away, your circumstances may mean that you  make a rushed decision and not shop around for the best financing. 

 

  1. Reductions of interest rate under the Service members Civil Relief Act. We’ve heard from service members who were led to believe it was okay to sign for a loan with a high interest rate since they were active-duty and therefore, the SCRA would drop the interest rate to 6 percent. Unfortunately, that  is not true. If you take out a loan to buy a vehicle after going on active duty, the SCRA interest rate cap will not apply – that cap is only for pre-service loans. You can find out more about your rights under the SCRA here. 
  2. Permission from your lender to take your vehicle overseas. If you think you might be assigned overseas, make sure before you sign the auto loan contract that your lender will allow your vehicle to be taken out of the country – many won’t.  If your lender has that restriction and will not waive it, then you should reconsider borrowing from them.  Shipping companies usually require your lender to write a letter of approval before they will accept your car for overseas shipment. Don’t be left with a big problem at the last minute because the fine print of your loan contract says you can’t take the vehicle with you.
  3. Special military interest rates or discounts. If you’re offered a rate or promotion based on being a member of the military and you decide it’s the best financing for you, make sure you receive that rate in the final paperwork. You shouldn’t agree to anything at signing that you didn’t agree to beforehand. If the company tries to change the loan terms at the last minute, you can refuse to sign the paperwork and continue to shop around for the best auto loan for you.  Remember, interest rates and terms are negotiable until the contract is signed.

 

If you’re struggling with a high interest auto loan payment, you may be able to refinance your loan for a lower rate by contacting your loan servicer.  If your current loan servicer can’t help you – shop around! Always remember to stay focused on the total cost when shopping. Lower monthly payments for a longer period can cost you thousands of dollars in interest. 

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