How to Drive Away With A Car Loan After Chapter 7 Bankruptcy?

Successful businessman offering a car key with contract.

Chapter 7 bankruptcy is embarrassing. It feels horrible, you lose so many things important to you, and we’ve been culturally indoctrinated to treat it as some sort of massive “failure.”

What’s almost worse is that it TAKES so long. The paperwork, the meetings, the reworking how you live your life – like you’ve committed a crime instead of run into a wall.

I’m not suggesting we have a party to celebrate chapter 7 bankruptcy or anything, but let’s be realistic. There are PLENTY of reasons someone might end up having to file. Medical bills, job loss, divorce, accidents – sometimes stuff happens, even when you’re doing everything right. Chapter 7 bankruptcy is a bad experience, but it doesn’t mean you’re a bad person.

Car Loan After Chapter 7 Bankruptcy?

As I type this, in fact, experts are predicting a surge of chapter 7 bankruptcy filings as a result of the economic disruptions brought about by the Covid-19 virus. Obviously we all hope it doesn’t come to that, but if it does, most of those people won’t have done anything “bad.” It sucks, but that’s how the world can be.

Even if you made some bad decisions that led to chapter 7 bankruptcy, at some point you have to focus on the future rather than lamenting the past. Of course, you want to learn from any mistakes, whether they were your own or others. You may need to change some behaviors. Make better choices, no matter how difficult. But in the grand scheme of things – Covid-19, drug lords, political corruption, terrorism, rape, murder, and abuse? You messed up by getting into more debt than you could handle. Yes, that’s bad. Boo debt! Boo not PAYING your bills!

But are you a bad person? Not by my measure, friend. Being that kind of bad requires malice or at least a reckless disregard for others.

So… are you a failure? Not unless you stay down and don’t start getting back up again soon.

What Is Chapter 7 Bankruptcy?

What many people overlook is that chapter 7 bankruptcy is BY DESIGN a chance to reboot, to start fresh, to do better. It’s a giant financial “do over” in many ways.

The term itself comes from chapter 7 of Title 11 in the U.S. Bankruptcy Code – the written laws that dictate how this sort of thing is handled. It’s intended to be a protection for consumers, not from paying your bills, but from things like debtors’ prison. Before bankruptcy laws, people unable to pay their debts were often simply locked up – and not in the best of conditions. You stayed until someone with enough money to pay off your debts (and then some) decided they cared about you enough to get you out. If you had lots of rich friends who liked you more than they liked staying rich, you’d have no problem. Otherwise, it was often quite literally a life sentence. Or perhaps “death sentence” would be more accurate.

If you remember learning about “Shays’ Rebellion” in high school – one of the triggers for tossing the Articles of Confederation and writing what became our brand new U.S. Constitution – that was largely a revolt against debtors’ prisons. It’s Article I, Section 8 of that Constitution which authorizes Congress to write some laws governing how bankruptcy works in what was then still a very new nation. And they did. States have some wiggle room when it comes to protecting debtors – the people to whom you owe money at the time you first file for chapter 7 bankruptcy. The basic process, however, should be the same no matter where in the U.S. you live.

Bankruptcy Comes With Modern Society

In short, as society progressed, bankruptcy protection was born. The goal isn’t to make it easy to avoid your responsibilities, but most government protections are there to shelter us from the worst possible consequences even when we are partly culpable. If I leave something too close to the stove and my home catches fire, there will be consequences. I will lose things and it will hurt, but the local fire department won’t ask if I screwed up before they agree to spray water on my house and grab my cat. Their willingness to save as much of your stuff as they can isn’t meant to encourage you to light more things on fire.

Bankruptcy is an effort to put out the fire. Obviously it’s ideal if you can avoid new fires in the future, but that’s not the same as deserving blame blame blame and shame shame shame.

Can you tell that I feel strongly about this?

How Does Chapter 7 Bankruptcy Work?

We’re going to settle for a general overview here since my goal is to talk about moving past chapter 7 bankruptcy rather than a “how to” guide. If you’re considering bankruptcy, read on, but then consult with a lawyer about your specific situation. I’m Mr. Overview here – a great place to get started and maybe help you know what questions to ask.

Chapter 7 bankruptcy is sometimes called “liquidation bankruptcy” because it attempts to move things along fairly quickly by “liquidating” (selling) your assets to pay off some of your debts. It’s different from chapter 13 bankruptcy, which is almost like a debt restructuring plan. With chapter 13, you get to keep more (or all) of your stuff and essentially repay your debts over a longer time period. It’s a bit more involved than that, but for now, that’s enough to give you an idea of how it’s different than chapter 7 bankruptcy.

If you file for chapter 7 bankruptcy, the court will place a “stay” on your current debts. This means creditors are temporarily banned from demanding payments, repossessing your stuff, foreclosing on your mortgage, or garnishing your wages. It’s a giant “HANG ON A SEC AND LET’S SORT THIS OUT’ from the legal system. The flip side of this is that this same court immediately takes legal possession of everything you own.

Well, OK – not EVERYTHING. Many things are exempt. By lots of what you own. The point is, it works both ways – debtors have to chill for a moment, but you’re not exactly off the hook, either.

How Does The Court Manage Bankruptcy Process

The court will appoint a trustee who manages everything going forward. They’ll distinguish between the exempt property (stuff you can’t lose in the bankruptcy) and non-exempt property (stuff you probably will). Exempt items often include your home, one vehicle, personal jewelry, essential appliances, books, toothpaste, socks, etc. Here’s where the protections of chapter 7 bankruptcy become clear – no one’s allowed to come to grab your family photo albums or take your microwave. On the other hand, if your home or car is worth enough, they may sell them anyway and make humbler arrangements.

Non-exempt items of potential value are then sold and the money distributed to your creditors based on a hierarchy we’re not going to worry about right now. The fact is, you can lose a lot of stuff the law doesn’t think you need in order to function. Maybe you don’t have much value, to begin with, or maybe you do and don’t realize how hard it will be to let it go. Chapter 7 bankruptcy is no fun, my friend.

After six months or so, many of your remaining debts are “discharged,” or canceled. Credit card balances, car payments, medical bills may be among them. Some debts aren’t eligible to be discharged – student loans, taxes, alimony, and child support, for example. You have to pay those one way or the other.

How Can I Get A Car Loan After Chapter 7 Bankruptcy?

You have several options for car loan shopping. That in and of itself should be celebrated. You have a chapter 7 bankruptcy in your past and STILL, you have SEVERAL options.

Let’s recognize going in, however, that none of them is ideal. Your credit score always impacts the type of loan you’ll be able to get, including maximum amounts and interest rates. The first car you finance after a bankruptcy probably isn’t going to be your dream car, but remember – we’re starting over. We’re rebooting and rebuilding. We can live with an older vehicle in good shape for a few years.

I’m not talking about a rust-bucket that’s been badly spray-painted with springs sticking up out of the seats or anything. Just a slightly older, less expensive model to get us started.

Option #1: Traditional Options

Don’t automatically assume your local bank or credit union is going to turn you down, or that the major dealers in your area won’t offer you financing. The competition they face from reputable online lenders and other alternative financing has changed the game a bit, although how much will vary widely from institution to institution. Your odds are better if you’re a long-time customer, even if that just means small checking and savings accounts.

Be ready for some painful terms, and don’t take ANY of it personally even if they turn you down altogether. At the same time, I wouldn’t automatically accept the first thing they offer you. Find the time to compare interest rates from different lenders. Just because you’re going to have trouble finding great terms doesn’t mean you won’t have options. If you’re employed and can show fairly reliable income over the past year or more, you may be surprised how eager they are to work with you no matter what’s happened in your credit past.

But you won’t know until you ask.

Option #2: Smaller Local Dealerships

Smaller lots probably only deal in used vehicles. Many come with little or no warranty and only their verbal guarantee of condition. If you’re comfortable applying for a used car loan, that’s great. If not, offer to buy lunch for a friend or family member who is. The good news is, they often offer to finance to folks who wouldn’t otherwise qualify. A subtle hint you can look for is the giant sign saying something like, “BAD CREDIT AUTO FINANCING.”

Details will vary – you may be looking at weekly payments or a larger down payment or some other arrangement you wouldn’t find from a traditional source.

You don’t have to take the first offer, but don’t write them off too quickly, either. Remember, we’re rebooting and rebuilding, and you have to start somewhere. You may feel like you’re taking a chance on this unknown little dealer, and you are – but they’re taking a chance on you as well. What if you’re both honest, hardworking people doing your best?

Option #3: Online Lenders

The 21st century has changed lending substantially. The lower overhead and national reach of online lenders means they’re able to be creative and competitive in ways it’s almost impossible for traditional lending institutions to match. Some even specialize in bad credit auto loans. The process is usually quick and fairly straightforward, and if approved, you may see the money deposited in your account in 24 hours or less.

The only trick, really, is sorting through them. That’s where we come in. Loanry maintains a curated database of some of the most reputable and creative online lenders available. When you let us know what you need, we scour our database looking for the lender most likely to make a good match. It’s then up to that lender to win you over and keep you happy.

Also, you have a lease option for buying a car, but in this situation, it is better to skip this possibility.

That’s right – they’re competing for YOUR business, not the other way around. And isn’t that how it should work?

Once You’re Approved

It’s good that you have a car; it’s better that you have a chance to rebuild your credit. If you don’t already have a workable household budget, make one. Use it. If you’re not sure how, we’ve written about them repeatedly here – do some homework. It will be worth it.

It probably goes without saying, but MAKE THOSE CAR PAYMENTS on time, every time. It’s not just about the car or the dealer, it’s about a new mindset and new habits and a new credit history. The longer you avoid new credit trouble, the higher your score. The higher your score, the better your options. Do you see a pattern?

What Does Chapter 7 Bankruptcy Do To My Credit?

I wish I could put this more gently, but it’s brutal to your credit score and a major stain on your credit history. Chapter 7 bankruptcy can stay on your credit report for up to ten years, although some of the specific debts will go away earlier than that.

In other words, it’s bad.

So, we’re accepting that upfront. If there are feelings associated with this reality, let’s go ahead and feel them while we’re at it. But friend, as we used to say not that many years ago, it is what it is. It’s done. The biggest question now is, “Now what?”

If you have a little time before you absolutely must buy another vehicle, I suggest doing the sorts of things I’d recommend if you had no credit one way or the other, to begin with. Even six months or a year (better yet, TWO years) of doing the right things can make a major impact on your credit.

What Sorts of Things, You Ask?

Get a secured credit card. These are the ones where you actually have money deposited ahead of time (or tie them to your savings account) to “secure” your credit card use. You can then use it just like a credit card. Partly this gives you flexibility and convenience that cash doesn’t always offer (you ever try to book a hotel room on the phone without a credit card?). Mostly, though, it helps begin rebuilding your credit. Timely repayment is treated just like repaying any other credit card for purposes of your credit score, despite the fact that you literally have the money already set aside to back up every purchase.

Borrow with a co-signer. If you need something too expensive to pay cash but smaller than a house or car, consider using store financing. Most anywhere that sells refrigerators, computers, or furniture, offers some sort of financing to make it happen. A co-signer is a trusted friend or relative with strong credit who agrees to “partner” with you on the loan. Even though you’re primarily responsible for repayment, if you miss a payment for any reason, they’re liable for your debt. This can help you get approved even when you have poor credit. On the other hand, this can be a relationship-killer if you default and they’re stuck paying your debt.

Conclusion

If you have a chapter 7 bankruptcy in your past, that’s where it should stay – in your past. It may impact your options, but it doesn’t define everything about you, even financially.

Take what steps you can to begin rebuilding.

Don’t be afraid to ask for help.

Start small and avoid repeating past mistakes.

You. Got. This.

If you ever need reminding, or want to look into that “online lender” thing a bit more closely, let us know. We’ll be glad to help.

Subprime Auto Loan Options to Get You on the Road

Subprime auto loans are types of loans that are used to finance a car that is purchased. They are offered to people with a limited credit history or a low credit score. These loans usually have a higher interest rate when compared to prime loan options. And they can come with a prepayment penalty if the borrower chooses to pay off the loan early. However, these borrowers may have no other option for purchasing a vehicle. So they are often willing to pay the higher rates and fees associated with subprime auto loans.

The History of Subprime Auto Loans

Subprime auto loans became a big business in the auto finance industry after the monetary expansion of 2001 to 2004, along with subprime mortgages and other lending options for higher risk individuals. Financial institutions were flush with money so they sought out higher returns by charging higher interest rates to subprime borrowers. The term subprime was then used in the media later, during the mortgage crisis of 2007 and 2009. Subprime lenders began to thin out after the Great Recession but have since been making a comeback.

With the risks lenders face with subprime loans, you may be wondering why they even bother. The answer is that there is a lot of profit, especially in the auto industry. By having a blend of loans that have different credit risk profiles, auto lenders can manage the total risk and this maximizes the profit potential.

How Do Subprime Auto Loans Work?

There is no official cut off for a subprime loan. Usually, your credit rating would have to be below 650 and above 450 in order to be considered subprime. In general, there are fewer than 20% of Americans who fall below 600. In evaluating borrowers, lenders can ask to see W-2s, 1099s, and pay stubs to be able to prove income. If a borrower is in a line of work that is hard to prove income, such as being a restaurant server who receives a lot of cash tips, then he or she may need to bring in bank statements that indicate a history of consistent deposits in their account.

Some lenders do accept bank statements in place of standard pay stubs. Even when getting subprime auto loans, it’s still best to shop around for rates. Not all lenders will be using the same criteria for approval and some charge different fees than others. Interest rates can be quite high because the lender wants to ensure it can recoup the cost should a borrower default on payments. Borrowers may decide they want to improve their credit score to qualify for better loan terms.

Determining If You Have a Subprime Credit Score

Understanding your credit score can make a big difference when paying for bad credit auto loans. In order to interpret your credit score and what it tells you about your borrowing power for loans, you need to know where your score falls on the range between the lowest and highest number generated by the scoring system. All credit scores have the same goal, which is to help lenders understand how risky it may be to do business with you. A high credit score will mean that you are less risky and have a low likelihood of default. A lower score means more risk to a lender.

The average FICO credit score for Americans is 701. If you have a score of 800-850, that is considered exceptional. If you have a score of 740-799, that is considered very good. But if your score ranges from 670 to 739, that is considered good. A score between 580 and 669 is fair. A score that is below 579 is considered very poor. Scores in the fair range are likely to be considered subprime borrowers. Those with poor credit scores may not qualify at all, even for subprime auto loans.

Types of Credit Scores Matter

You may be surprised to learn that there are different types of credit scores. The scores are calculated using computer models and look at the contents of your credit report. The three national credit bureaus are Equifax, TransUnion, and Experian. Models developed by different companies, such as the FICO score, differ in how they calculate and report the scores. There are usually multiple versions of a given model available from the developer of the software used to score. When you are comparing one credit score to another, or looking to track changes over time, it’s important that you know which scoring model is being used to calculate the score, which credit bureau furnished the credit report, and the highest and lowest scores you get using the model.

When looking at your credit, you need to look at the credit score range. For example, the good credit range spans quite a bit and wouldn’t make you eligible for a variety of loan offers. The FICO score is used in about 90% of the lending decisions so it’s a good reflection of creditworthiness to a lender.

Calculating Your Credit Score

The specific calculation method that is used to calculate a FICO score is a trade secret but there are some things that factor into how your score is calculated.

Payment History: Paying bills and your debt on time is the biggest factor that affects your score and can account for 35% of the score.

Credit Usage Rate: You shouldn’t be using more than 30% of your total credit card limit if you want to keep your score higher. The credit utilization rate is responsible for about 30% of the score.

Length of Credit History: Your score will continue to increase over time, as long as you are following basic guidelines. New credit users aren’t able to speed up the length of the credit history but can help build up the score as the credit history continues to get older.

Total Credit and Debt: The credit score reflects total outstanding debt, as well as the types of credit you use. The FICO score likes it if you have a variety of different loan types, including installment credit and revolving credit.

Recent Applications: If you recently have applied for a loan then it will trigger a process called a hard inquiry. This means the lender has requested your credit score. A hard inquiry will usually lower your score by a few points, but as long as you continue to pay bills on time, the score will rebound quickly. If the lender uses a soft inquiry, or you are checking your own score, then it doesn’t have an impact.

Why Are Subprime Auto Loans Popular?

The standards for subprime loans have gotten more relaxed that they are being given out more often. There are a few reasons for that.

Collateral

A car loan is secured by the vehicle, which can be repossessed if you default on the loan. This means that some lenders are more willing to take the risk of giving loans. New technology makes it possible for the lender to disable the car remotely if you miss a payment.

Secondary Debt Sales

The growing market for subprime auto loans that are bundled into asset-backed securities have also prompted some lenders to make financing available to those who wouldn’t have qualified just a year earlier due to a history of not managing obligations.

Dodd-Frank Exclusion

The Dodd-Frank Financial Reform law from 2010 exempted automobile dealers from the oversight of the U.S. Consumer Financial Protection Bureau. This means that financing that is arranged through a car dealer is less regulated from loans that are obtained from a credit union or bank directly. It’s easier for lenders that are working through a dealer to take advantage of borrower’s bad credit.

Getting Subprime Auto Loans

If you have a credit score that puts you in the subprime category, you should still shop around for a loan. Banks, credit unions, and online lenders will specialize in borrowers with poor credit. Auto loans for bad credit online may be easier to get.

Figure Out What Kind of Car You Can Afford

See what kind of monthly payment you are going to be able to fit into your budget before you apply for a loan. If you aren’t able to finance the car you want within your budget then consider looking at more affordable or older models. Sticking to your budget is very important.

Work with a Lender You Know

If you have a credit union or bank where you already have an account, you may be more likely to get a better auto loan from that institution.

Know Your Credit Score

Your credit score carries a huge weight and is the main factor that puts you in subprime borrower status. Knowing your score will help you know where you stand and what your options are.

Consider More than Just the Monthly Payment

You need to weigh the total cost of financing the car. If you lengthen your term then you will pay more in interest over the life of the loan.

Look at All the Expenses of Car Ownership

This will include title fees, insurance, maintenance, repairs, and state taxes.

Shop Around

Just like with other loans, you need to shop around for subprime auto loans. Shop around and compare offers so you can make sure that you are getting the best possible loan terms for your situation. You can do that here, on Loanry. Remember, all lenders we work with are reputable companies who can be trusted when it comes to loans and honesty about terms and the agreement.

Benefits of Subprime Auto Loans

While there are plenty of disadvantages of subprime auto loans and you need to proceed with caution, there are some advantages as well.

Helps You Get a Vehicle: Depending on where you live, you may not have an option to use public transportation and need a car to get to and from work. Subprime auto loans can get you in a vehicle without having to spend the time working on improving your credit score.

Can Help with Credit: A subprime loan can help you improve your credit if you make your payments on time.

Can Help First Time Buyers: If you are a first time car buyer then a loan may be your only option for buying a car. You may not even have a credit score at all if you are just looking to buy a car for the first time.

Disadvantages of Subprime Auto Loans

There are some hidden risks with subprime auto loans. Before you sign a loan agreement, consider the potential cost.

High Interest Rates: A subprime auto loan usually comes with a higher APR than a conventional auto loan. The APR is the interest rate of the loan expressed as a yearly rate. The APR for an auto loan can also include fees, such as one for the origination of the loan. This number will give you a sense of how much the loan will actually cost. The interest rates on a subprime auto loan can be up to 29%. Those with employment situations that require access to a car can often be vulnerable in these situations and won’t have much of the power to negotiate the loan’s rates and terms.

Extra Fees: In addition to the higher APR, there may be higher fees attached to the loan. Some of these high fees can include a processing or origination fee, a prepayment penalty, and a service contract for repairs and maintenance service.

Risk of Repossession and Default: Subprime auto loans are at a higher risk for repossession and default. If the borrower takes out a loan with a harder-to-manage payment plan, it’s likely he or she will default and then the car is going to be repossessed.

Income Demands: Although subprime loan lenders may not be demanding about your credit score, they can be stricter when it comes to your income. You must have sufficient cash flow and income in order to cover the monthly payments. The lender will go through a thorough financial check in order to make sure that you can meet the payments. If you aren’t able to prove that you have enough cash flow, you likely won’t qualify.

Is a Subprime Auto Loan Right For You?

If you need to work on your credit score but don’t have the time before you need the financing then subprime auto loans may be better for you. As long as you can make the payments on time, you can actually improve your credit score and still have the financing you need for a reliable vehicle.

If you are tired of getting rejected for traditional loans and credit options then a subprime loan can be for you.

Leasing a car makes sense for certain situations but if you can’t afford a car lease or don’t end up qualifying for one then you will need to get a subprime auto loan.

In the subprime loan market, it’s easier for borrowers to get the money they need and be approved. This approval process can be smoother and get you on the road sooner.

Where to Go for Subprime Auto Loans

It’s best to find subprime auto loans at a bank or credit union instead of the dealership. It’s never a good idea to step into the dealership without preapproved financing, especially if you have subprime credit. When you get preapproved financing from a lender other than the dealer, it can help you with your car buying budget based on what you can afford, instead of the car you are trying to buy.

What Happens if You Don’t Pay Back a Subprime Loan?

If you aren’t able to repay your subprime auto loan then your current financial situation is only going to get worse. If you have just one late payment then you may be able to redeem yourself with a long series of on-time payments. Many lenders don’t want you to default on the loan and will help work with you to make sure that doesn’t happen. Some unscrupulous lenders have built a business model where they do repossess your car and then sell it to another borrower with credit issues.

If you fail to make your payments and you default on your loan then it can destroy what little you have left of your credit score. This can make it much harder or impossible to borrow again. You will also risk losing your vehicle. In some states, you can also be liable for the difference between the amount the lender gets from selling your vehicle and the balance of the loan. Subprime auto lenders may have electronic auto trackers installed in order to make finding the car easier so they can repossess it. Some even go a step further with a system that disables the vehicle until a you make a payment or they have the car back.

If you think you are in danger of missing a payment then the best course of action is to contact your lender. You don’t want to just hide from them. Describe your circumstances and see if you can find a solution. If your issue is just a one-time thing then you may be able to skip a payment. If it’s a long-term issue then they can work with you to sell the vehicle so that you won’t have your loan obligation.

Can You Avoid Getting Subprime Auto Loans?

If you can avoid getting a subprime auto loan, it may be in your best interest. There are some things you can do to get a new vehicle when you have a bad credit score.

Improve Your Score

Take a look at your credit history and be sure to correct any errors in your reports. Then work to improve your credit score. While it’s easy to destroy your score with a bad financial decision, raising it can take patience and time. You want to have several months of on-time bill payments and start reducing your credit card debt. This can help get you out of the subprime lending market and into a much less expensive loan. Even if you don’t raise your score to get into the next category of borrowers, if you can show an improvement in the history of payments, it can convince a loan officer at a smaller financial institution to give you a chance to prove yourself.

Find a Second-Chance Lending Program

Some lenders, especially community banks and credit unions, have what they call second-chance borrowing programs for their customers with not the best credit history. The loan terms can be restrictive but a second-chance loan can be a stepping stone in the right direction to avoiding non-subprime auto loans.

Use a Co-Signer

Have a friend or family member co-sign a more traditional loan. This can be helpful for getting you in a car but be aware that it can be dangerous to the credit score of your co-signer. Before you have a friend or family member co-sign a loan, both you and the co-signer should understand the risk and benefits.

Refinancing

If you don’t have a choice to accept anything other than a subprime auto loan then you need to make sure you pay all your payments on time and in full. After doing this for the first year, you can put yourself in a position to be able to refinance the loan with better loan terms and interest rates.

What Is the Most You Can Borrow with a Subprime Auto Loan?

You can only qualify for subprime auto loans? Then you have to be more realistic about your car choices. You need to choose a vehicle that fits in your budget. So you need to see how much car you can afford. With a budget in place, you can focus on cars that fit within those parameters.

When dealing with subprime auto loans, there can be a few layers to the qualification process. They can affect how much you can borrow. Prime lenders typically look at your income, debts, and credit score. Then you get approved if you have good credit. Subprime lenders have some extra qualifications, such as a minimum income per month, a certain amount of time at your current job, and references. These extra qualifications will of course vary by lender and your credit score. But they can also affect how much you can borrow.

Since lenders usually look beyond your credit score, one of the main things that they will focus on is your debt-to-income ratio. If the ratio is high then you may not qualify at all. If it’s high but not high enough to disqualify you, it adds to the cost of your car paymen. Along with your cost of insurance.

While there is no set answer on how much you can borrow, it’s important to shop aroun. This way you can get an idea of what you qualify for before you go car shopping. This way, you aren’t going to go over budget and won’t risk finding out you can’t qualify after you already found a car.

How Do Subprime Loans Affect Your Credit Score?

Subprime loans will affect your credit just like any other loan will. Your payment history is such an important factor in your score. So it’s absolutely necessary to make payments on time if you hope to improve your score in the future. One way to make sure that this happens is to set up automatic payments from your checking account.

Make sure that there is always enough in your account in order to cover what you owe. Then you don’t have to face additional fees. Or overdraft your checking account. If you do miss a payment keep in mind the following. It won’t be reported as late until 30 days after the due date. You may face fees if you are just a few days late. But it doesn’t show up on your credit report right away. Make up the missed payment as soon as you can. Before it shows up on the report and affects your credit.

Work on Your Credit Before Applying

If you are hoping to avoid subprime auto loans then it helps to work on your credit before applying. It’s possible to get approved if your financing needs aren’t urgent. But it’s helpful if you can wait. This way you can get a better interest rate and be in a better place financially.

Start by checking your credit score. If you get a copy of your credit report, it may have specific areas that you need to work on. It’s possible that you have fallen behind on payments with a credit card or loan. So work to catch up as fast as possible and make sure to make on-time payments moving forward. If your credit utilization rate is high then start to pay down debt as soon as you can. While improving your credit score can take some time, it’s worth it, in the long run, to save you money.

Final Thoughts

While subprime auto loans are here to help get you in a vehicle quickly, there are also some risks. You will likely pay more in interest and fees. However, there are options available and if you shop around, you can find the best rate for your situation. Research your various options and don’t take the first offer you get unless it is, in fact, the best offer. Avoid other short-term loan options, such as auto title loans or payday loans, in order to get into a car.

Getting a Car Loan with Bad Credit: Money Speed Bump

My poor little car is pretty much on its last leg. Sometimes I get in it and it simply will not start. The heat and air recently went out. There are some issues in the wheel well and the brake area. I could go on with this list, but the bottom line is that I try not to drive any farther than I am willing to walk back.

We bought the car used in February of this year, so we have had it less than a year. I have nothing against used cars as a whole- in fact, I have only ever owned used cars- but this particular one had not been cared for at all by the previous owners.

About a week after bringing it home, we knew that it was going to cost more to fix it than replace it. I have known it needs to be replaced, but I honestly hoped it would at least last until tax season. I am thinking that is not going to happen. Now, I am faced with finding a new car with nothing saved and credit that leaves much to be desired. Sound familiar? We are in this together, so let’s figure out how to get a car loan with bad credit.

Basics of an Auto Loan

An auto loan is like every other loan- you borrow money, you get what you need, you repay the loan. Also like every other type of loan, there are pros and cons to it. These should be considered carefully before rushing to get a car loan with bad credit.

Pros

  • You have your car almost immediately. Unlike saving to buy your car, you can drive away with the car as soon as the money comes through and paperwork is signed. This could simply be a matter of minutes or hours.
  • Drive now and pay over time. Again, you do not have to wait to purchase. You can be driving the car the entire time you are paying on it. This is always a bonus, especially if it is going to take you a long time to save enough for the purchase.
  • You might be able to afford a nicer vehicle. With an auto loan, you may get approved for more than you could save. This means that you could typically purchase a better vehicle than if you simply paid outright.

Cons

  • It is a debt and you are at the mercy of a loan and lender. Without being too dramatic, lenders and debt are a type of prison, in my opinion. The lender may be a very nice prison warden, but you are still a captive of that debt until you pay it off. Debt can affect a lot of your life, including your mental health.
  • You might be tempted to over spend. Since you may get approved for more than you could save, you may be tempted to buy a more expensive car than you can afford. Before even applying for a loan, you need to determine how much you can afford every month. Whatever that amount is should be what you stick with. Otherwise, you are putting unnecessary stress on yourself.
  • You risk losing the vehicle. While you owe the loan, you are at a potential risk of losing that car. If you do not make your payments, they have the right to repossess it. This does not typically happen on the day after you are late. Nobody really wants to repossess your car because that is just something extra for them to deal with. They would much prefer that you just pay the loan, so you probably will not lose the car right after missing one payment. However, this is the lender’s business. If you do not pay, they are losing money, so they will not let you go forever without payment. If you continue to be late on your payments and have a delinquent amount, you just might find yourself without a car on top of losing any money you have put into it.
  • It may require additional insurance. Most lenders require you to carry full coverage insurance while you owe the loan. This is to make sure that their investment is protected. Closer to the end of the loan, they may drop this requirement, but expect it for the majority of your loan term. The cost of this insurance should be factored in to how much you can afford to pay each month.

Car Loan with Bad Credit: Is It Possible?

It is most certainly possible to get a car loan with bad credit. The issues tend to come in with the loan rates and terms. It will also limit where you get financing.

How to Shop for a Car Loan with Bad Credit

When you know how to shop for a car loan, you can get a much better deal. While it is most definitely possible to get a car loan with bad credit, you can expect to put in more work than someone with good credit. Not all lenders will provide loans to people with bad credit. Those that do may require high monthly payments or charge ridiculous interest rates, so you really have to look for a good car loan with bad credit.

Auto Loan from Financial Institution vs Dealership Financing

The first thing you should know is that there are two basic types of auto loans. One is financing from the car dealership. The other is financing from a completely separate financial institution. Each will have different credit requirements, terms, and so on. It is not possible to say which one is better without knowing what each is offering, but you should know what to pay attention to. The interest rates should play a large role in your decision.

The Effect of Interest Rates

When you are trying to decide between the two, obviously the price of the car itself matters along with the interest rates. Sometimes interest rates can be so close to one another that you think it will not make much of a difference. That is not true. Let’s say you are buying a $15,000 car. This is what different interest rates would look like:


10%= $1500
12.5%= $1,875
15%= $2,250
17.5%= $2,625
20%= $3,000


These are simplified and fictitious numbers, but hopefully you can see what a big difference interest rates can make. It is incredibly important to shop car loan rates. When you are carrying out your auto loan shopping, choose the loan with the lowest rate possible, even if it is only 1% cheaper than another. Of course, you want to weight this amount against other factors, such as the repayment length, but most often, the lowest interest rate will provide the best option.

Wouldn’t it be great to have a mall where you can shop for loans? Wow…that would be so awesome…what? There is?! You’re right here! Loanry is the place you’ve been waiting for.

How to Get a Car Loan with Bad Credit AND Low Income

Many people wondering how to get a car loan with bad credit are also wondering how to get an auto loan with low income. While this does pose an additional- but very common- problem, you do not have to give up. You will just need some additional planning, saving, searching, and that kind of thing. There are places that will work with you, even with low income. Be prepared to take some time to really search, though, so that you can get a loan with good terms and rates.

Choosing the Right Car Loan with Bad Credit

We already talked a bit about interest rates. That should be a deciding factor in which loan to choose. However, choosing that loan is simply where it starts. You must also consider how the loan will affect you while you are paying on it.

Consider Your Situation and Lifestyle

As a freelancer, my income ebbs and flows. Some months I make excellent money, and some months not so much. Knowing this means that I have to really consider financial decisions I make. I cannot make any of those decisions based off of my great months because those do not happen consistently. Instead, I factor in the bad months and the mid-range ones. I would prefer to know that I can make the payment even at the worst times than to risk it.

What about you? Are there any special considerations you need to make? Do you have the type of job where you only work a certain amount of months out of the year, i.e. seasonal or oil related jobs? Are your finances already stretched so much that they are about to snap? Do you want to take a month off this year to write your novel or take care of your parents? If there is anything like this, you have to factor this into your decisions or you will end up worrying about how to make payments.

Alternatives to a Car Loan with Bad Credit

Obviously, paying cash for a car would be awesome, if it is possible. Pick up extra shifts at your job, pick up a side job, anything you can do to put some cash away. With patience and diligence, you might be able to pay cash for a car cheaper than you think.
You might not be able to afford to pay cash for it, but maybe a family member will pay for a cheap used car up front and allow you to pay them back.

They might also be willing to cosign with you so that you can get a much more favorable interest rate. Though both of these options are still technically a loan, they will be much better than getting a loan with bad credit.

How to Decrease the Amount I Need to Borrow

One of the best moves that you can make if you must get an auto loan is to decrease the amount you have to borrow. The less you borrow, the less interest you owe. It may require some extra work in the beginning, but it can save you a lot of work down the line. Get creative with ways to save, as there is always a way. Here are a few factors to consider as you do:

Consider Used VS New

Many people have an issue with used cars, and to some extent, I can understand it. There are some who simply have too much pride to be seen riding around in a used car, or they just have to have a new one. If that is you and you can afford it, you can get all of the new cars you want.

Many people reading this though are reading for the purpose that they cannot afford it, at least not all at once. If this is you, join the club. Very few people can simply pay for a new car out right. Let’s consider the numbers to prove my point.

In 2018, there was a total of 27 million new auto loans. And as of March 2019, Americans owed $1.16 trillion. Unless all of these people are taking out these loans for fun or simply because they do not feel like paying it all at once, this shows that the majority of us need help buying a car.

Now, let’s consider the difference in new and used. You can find used cars for less than $10,000- much less. In fact, one of the best cars I have every owned was a cute little Toyota Camry that I bought from an elderly couple for $1,200. They had been the only owners of the car and had taken good care of it. The only reason I got rid of it is because I found out we were pregnant with our fourth child, and- as much as I wanted it to- it could not fit the six of us. We upgraded to an SUV that could fit us all.

As far as purchasing from a used dealership, I have done this, too. In fact, the SUV we upgraded to was a 2001 Chevy Suburban that was $8,000. Our payments were $300 per month for two years. We ended up paying for one year, then paid it off the next tax check we got.

While we were paying this, a friend decided to buy a new car. She went to a dealership and signed the paperwork for a $30,000 car. Her payments were nearly $600 per month and she would be paying for five years. That payment is more than we were paying in rent at the time for a pretty nice house. Yikes!

Additionally, we only needed $1,000 down to drive the Suburban off the lot. I do not remember the exact amount, but she had to come up with three or four times that much. Call me cheap, but if I am going to have to come up with thousands for a down payment and pay $600 per month, I would prefer to do so to buy a house, not a car.

One reason people are against used cars is that they are not always in great shape. While used cars may not always be the best solution, they often are much better than you might expect. If you are concerned about a used car, take it to a mechanic during your test drive. They can tell you if anything is wrong. Many used car lots will fix most problems while you are making payments. If they do not, you can always negotiate on the price if there are any problems.

Another idea is to look for a used car through a rental car company like Enterprise. At regular intervals, they replace “old” cars with new ones. Though their idea of old and mine are a bit different. The good thing about these cars is that they have been taken very good care of, so they tend to be a good investment.

Save for a Down Payment

A great way to cut back on your loan or financing amount is to put down the biggest down payment you possibly can. Even if you can only come up with $500, that is $500 you do not need to borrow or pay interest on. If you can put off purchasing your car for a few months or more to allow you to save, this will be a great way to go.

Make Some Quick Extra Cash

If you cannot wait months to purchase your car, you can still put down a nice down payment by making some quick cash. The ways to do so are only as limited as your creativity. But a great ways is through having a yard sale or two. Everyone who knows me or has ever read any of my advice knows that I am a huge advocate of yard sales. This is because I know that they work and they have multiple benefits, the biggest of which is that you get to clear out your house and make some money for doing it.

Take a run through your home. Throw everything in a box that you do not use, do not want or like, have used as much as you think you can, have unnecessary duplicates of, and so on. Then, go through your home again to do the same. Sometimes you do not notice things the first time, but notice them later.

It can often be tempting to think, “No one is going to want this stuff.” But one man’s trash really is another man’s treasure. You never know who is on a tight budget and will be more than happy to pay you $3 for what you consider an old pair of jeans. You never know what single mom will gladly pay you a couple of bucks for pens, scissors, glue, and more to save money on school supplies.

That is another thing I love about yard sales. Not only does my family and my home benefit, but so do others. During some yard sales, I have met some people truly in need that I have been blessed enough to pass things on to for no charge. If this seems counterproductive to making money, you must not understand the laws of sowing and reaping, karma, or whatever you choose to call it. Basically, when you help others, help somehow finds you, so giving is investing in yourself and others.

Be sure to advertise your yard sale, even if it is just on Facebook. Take pictures of some of your items to go with the post. Trust me when I say that some people absolutely live to go to yard sales and markets on the weekends. Price your items fairly so both you and your customer can benefit. Be willing to cut down on your prices, especially if it is getting later in the day.

If you have a lot of clothes, consider a $5 bag sale. This is my favorite thing to do. I always have piles of clothes. Trying to get rid of them one piece at a time almost always means I have to pack most of them back up. Instead, I hand my customers a grocery bag and say, “Fill it up for $5”. They stuff the bag so a lot of clothes are moving out, and I make some money. Try it yourself. You might just come away with a hefty down payment for your car.

Getting a Car Loan with Bad Credit to Build Credit

If you have had to get a car loan with bad credit, you probably wish your credit was better. Though there may not be a lot you can change this time, you can use this experience to make it better in the future. It is absolutely possible to build your credit with a car loan, if you handle things the right way.

The right way basically means that you pay your payments on time. While it may be a struggle, we have some advice for you: budget- my other favorite financial advice. Think about it: how are you going to pay something that you do not know when to pay, how much to pay, or where the money will come from? As much as I wish they did, bills do not just take care of themselves. You actually have to put the work in.

The first thing to do, in my opinion, is to put the payment date in or on something that you cannot ignore. This will differ depending on your preferences. If you are more of a paper and pen person, write “Car Loan Due” on every monthly page of your wall calendar on the correct date. If you are more of a digital person, type it up on your Google calendar and set it to repeat every month.

Next, set aside a day each month to sit down and plan out your bills. You should have the dates all of your monthly bills are due down on something. If you do not, now is the time to do so. Use this to determine how much needs to come out of each check to go to your bills. If you see you will not have enough for any of your bills, including your auto loan, find a way to make some extra cash then- not the day before the bill is due.

If- after all of your planning- for some reason you will be late on your payment, call your creditor. It is much better to speak with them and let them know what is going on than to hide from it. More often than not, they will try to work with you, which means the late payment may not show up on your credit report.

As long as you are making your payments on time, you should see an increase in your credit score. If you have purchased from a used car lot that does not normally report to the credit bureaus, you can still often use your receipts or some type of statement from them and report it to the credit bureaus yourself. It takes a little more time and effort on your part, but it is well worth it.

How to Establish Credit History When You Have No Credit History?

Conclusion

When you decide that it is time for a new car, try not to jump too fast into a situation. That is when mistakes tend to happen. All financial decisions, including getting an auto loan, should be carefully considered prior to signing on the dotted line. When shopping, simplify your work by using a platform that brings lenders to you. This will help you compare them more easily, and probably discover some you did not even know existed.

Auto Loans with Low Income: Ride Here

There are many reasons you might consider getting an auto loan. Are you purchasing a new or used car and do not have enough money in the bank to pay for this vehicle out of pocket? Are you looking for a chance to refinance an auto loan you already have? If either of these situations reflect your own personal situation, then it may be time to consider getting an auto loan? Are you concerned about being able to buy the car you need because you have a low income or bad credit. Don’t worry — it is possible to get auto loans with low income and bad credit. You can even get auto loans for bad credit online.

How to Get an Auto Loan with Low Income

Getting a personal loan is so easy it can be done in three simple steps. If you are looking for auto loans with low income, then you may feel like your task is impossible. Trust me, it’s not. You can do this. Searching for auto loans with low income just requires you to work a little bit harder. For instance, you cannot be afraid to ask for help. There are many companies whose sole purpose is to help consumers find auto loans with low income.

These companies offer their services for free and help consumers find a local dealership in their area that will help you find auto loans with low income. Or they help you find a lender that is right for you. You usually apply by filling out a short form online that can be completed in just a few minutes.

When it comes to getting an auto loan with low income, patience is the key. You may stumble upon several obstacles, and surely getting a loan will not be as easy. But it is far from impossible. With the right help, you may find great auto lenders and get approved for a loan.

How to Get an Auto Loan with Bad Credit

While we’re at it, let’s talk about another unfavorable situation – bad credit. Same as with low income, bad credit is an obstacle to getting a loan. It will not stop you from getting a loan, but it can hurt your chances of getting a loan with a low-interest rate. In fact, if you are looking for an auto loan with bad credit, then there are auto loans out there made just for you.

In order to get auto loans with bad credit, you should consider requesting a meeting with a loan officer. At this meeting, you can show the loan officer who you are, with a positive presentation and demeanor, as well as explain what your personal situation is. This meeting can give you a leg up in your chances of getting an auto loan.

In addition to meeting with a loan officer, consider the cosigner or collateral option. If you have bad credit, then you may still be able to get an auto loan if you have someone cosign with you. This other cosigner is agreeing to the absolute responsibility of repaying the auto loan, so that if you do not pay, then the lender knows that someone will. If you are not comfortable asking someone to cosign with you, then you can consider putting up collateral for an auto loan. This means that if you do not make the payments on your auto loan, you could lose the collateral you put up for the loan, such as your car or house.

Auto Loan Basics

Auto loan basics are basics for a reason: they’re the basics that everyone should know. This does not mean you should feel bad or uneducated because you do not know something here, but if you don’t know something mentioned below, then it means you are definitely in the right place. If you are considering getting an auto loan, then you need to make yourself familiar with these auto loan basics:

What Is a Car Loan and How Does It Work?

There are two types of auto loans. You can either get direct lending or dealership financing. If you choose direct lending, then you get to make the arrangements of your auto loan with the financial institution of your choice. If you choose dealership financing, however, you will have to make the arrangements through the dealership. Both options have pros and cons, and in general, the two options are not dramatically different.

Direct Lending

When choosing to go with direct lending, you are choosing more freedom. Because you can choose whichever financial institution you most prefer, you have the freedom to comparison shop for auto lenders. Auto loan shopping allows you to find an option that fits your budget, with realistic payment options and better rates and terms. Plus, if you have pre-approved financing, then you are sometimes able to negotiate a better price.

Dealership Financing

Dealership financing can be a simpler option. You do not have to deal with auto loan comparison shopping, spending a lot of time and effort to find the auto loan with the best terms. If you choose dealership financing, then the dealership will do this for you. They will either do the financing internally — if they have their own financing department — or do the financing externally — through a finance company that they have a prior agreement with. One benefit of dealership financing is that it means you already know what car you want, which means that you already know how much financing you need before getting your loan. This could save you money in the long run, so that you don’t have to pay back even more — including that compounded interest — in the future.

The Car Loan Process

Getting a car loan isn’t very difficult, but it can be made even easier if you understand the car loan process. The first thing you should do is to use an online auto loan calculator to set a realistic budget for yourself. Once you have your budget, you should check your current credit report, so that you have an idea of what loan options you will have. It is possible to get auto loans for bad credit online, but it is a good idea to inform yourself of your situation early on in the process. This can allow you to set realistic expectations for what your loan options will be.

Before getting a car loan, it is a good idea to know what you are looking for in a car. Research is essential. If there is a specific make or model you prefer, or any special features you know you do not want to go without, then you should keep that in mind when researching the range of prices for similar cars to your preferences. Many people trust and rely on the Kelley Blue Book to see what current average prices of specific cars are.

Once you know what your current financial status — including your credit score — is and what your will be likely to have to pay on average for the kind of car you want to buy, then it is time to do some auto loan shopping online. This can help you find the best auto loan for you and your personal needs.

Auto Loan Basics Spelled Out: Lending 101

Types of Loans

Before you make a commitment to getting an auto loan, you should know what your options are. There are many types of loans out there, and there is certainly an option out there that is right for you. An auto loan is just one type of personal loan. Below are some other types of personal loans:

Unsecured Loan

An unsecured loan is a type of personal loan that does not have collateral backing it up. This means that if you do not make your monthly loan payments in full and on time every month, then the lender cannot just take something from you in order to make up for the money you did not pay. This means that an unsecured loan is more risky for lenders. Though very uncommon, it is possible to get an unsecured auto loan.

Secured Loan

A secured loan is a type of personal loan that does have collateral backing it up. Items put up for collateral are typically worth a lot of money, so that they can make up for whatever you decide not to pay on your loan. For instance, if you get a secured auto loan and do not make your payments on the loan on time, then your new car can be taken away. Auto loans are most often secured loans.

Open-End Credit

Open-end credit is a type of credit where you can “withdraw money as you need it, over an extended period of time.” Two common options for open-end credit are lines of credit and credit cards. This is a good option for someone who is, for instance, working on a project where they need to take out multiple smaller sums of money, depending on what individual expenses they have. One advantage of open-end credit is that you typically do not have to pay interest on whatever money you do not withdraw.

Closed-End Credit

This is a type of credit where you get one set lump sum. Closed-end credit is typically done in the format of a traditional loan. You request to borrow a certain amount of money, and you get that amount of money in a lump sum. Then, you must repay this lump sum, plus interest, over an agreed-upon period of time. If you decide to get a single payment loan, then you will be required to pay the entirety of the loan — what you borrowed plus interest — in one lump sum.

Auto Loan Rates

It is impossible to say what your auto loan interest rate will be without knowing your exact situation. Rates can vary from lender to lender, and dealers may push special promotions in order to quickly get rid of certain stock. Regardless of these uncertainties, there are some things you can be certain will have an effect on what rate you end up getting.

The Impact of Credit History on Auto Loans for Low Income

Your credit history will be sure to affect what interest rate you get. Though it is possible to get auto loans for bad credit online, you are not likely to be able to get an interest rate as low as someone who has good credit. On the other hand, getting a loan — and repaying the full amount due on time every month — could actually help strengthen your credit. For more information about how getting a personal loan can help your credit, read on here.

The Length of the Loan

The length of the loan can also have an impact on your interest rate. Generally, though not always, loans that will last longer have higher rates. Sometimes you don’t have a choice; if you cannot afford to take an option with a shorter loan, then get the longer loan that is more realistic for you, however, if you can afford to get a shorter loan, then that is a better option that will allow you to spend less overall in the end.

Which Car You Want

Not all cars are equal. What you buy will determine how high or low your interest rate is. If you are interested in financing to purchase a new car, then you may be able to take advantage of introductory rates or special financing. If, on the other hand, you are interested in financing to purchase a used car, then you may not be able to find such deals. This is because “used cars are considered a greater risk for lenders, since their resale value is already lower and the chances are good you’ll owe more than the car is technically worth at some point down the road.” Used cars may come with a lower sale price, but they also come with higher interest rates.

A graph showing the variation in auto loan rates by credit score.

What You Need to Know About Auto Loan Shopping

If you have decided to take part in auto loan shopping, then there are some basics that you need to know before taking action. First of all, you should budget before you shop for auto loans. If you budget before beginning auto loan shopping, then you will be more aware of your realistic expectations in finding an auto loan. For instance, budgeting will help you determine how much you are able to pay up front for a car, as well as how much you will be able to pay in monthly payments after you get the car.

Besides budgeting, it is important to explore all of your options. This is why auto loan shopping is so important. If you take the time to look at multiple auto lenders, then you will see what options are available — with what terms and rates. This could help you get better rates in the end, since you usually do not get the best offer on your first try. Exploring your options will help you find the absolute best auto loan for you.

For more information about what you need to know about auto loan shopping, such as information on auto loan discrimination and how to negotiate auto loans, read on here.

Auto Loan Statistical Overview

You shouldn’t feel alone if you are considering getting an auto loan. According to the Federal Reserve Bank of New York, auto loan debt is on the rise. In fact, auto loan debt has been on the rise for the past decade, however, while people with lower credit scores — credit scores of 719 or less — have plateaued recently, people with higher credit scores — credit scored of 720 and higher — have “[continued] to grow as a percentage of total borrowing.” This indicates, among other things, that “people across the U.S. are improving their overall credit scores.” For more information about the statistical overview of auto loans, read on here.

Conclusion

Getting auto loans with low income can be stressful, but with the help provided above, the process should be much easier. You can also get help from Loanry and look into our lender recommendations.

Bad Credit Auto Loans To Get Driving Fast

Unless you live in a major city like Chicago, New York City or Tokyo, you’ll need a car, truck, motorcycle or moped to get around. The alternatives are constant Lyfts and Ubers or taking the bus or subway. While both options, vehicle ownership and mass transit, cost money, owning a vehicle of your own has convenience advantages.

Purchasing one’s first car also stands as a rite of passage into adulthood. When you buy a car, you negotiate with the salesperson and arrange your financing. It is a show of your adulting skills. So, what do you do if you have little to no savings, no credit or bad credit, but need the convenience of a vehicle? You apply for Bad Credit Auto Loans and motorcycle loans designed specifically for those with bad credit.

Get an Auto Loan Fast

Avoid jumping into bad credit auto loans without doing your research. Read on to know more about the process.

Just because an institution says it offers auto loans for those with bad credit, does not mean that loan will work great for you. It may have a short pay back term or an exceedingly high interest rate. Take all of the following steps to get your finances ready for loan applications before you try to apply for a loan. You’ll save yourself time and money. Then shop for bad credit auto loans online.

Loan application may even require an application fee that accompanies it. These range from $20 to $50. That can add up. It is best to wait until you know you and your credit score are ready to apply.

“Know your budget, check your credit score, and review your existing credit accounts to ensure they are reported accurately,” said Joe Pendergast, the vice president of consumer lending for Navy Federal Credit Union in an interview with Credit.com.

Get Your Credit Score Ready

First, your definition of bad credit probably does not match that of a financial institution. Credit scores can range from 300 to 900. Banks and credit unions tend to think of bad credit risks beginning at about a score 640 or less. You might think that your score of 540 is pretty good, but banks see it differently. Banks know that you do not have to be rich to have a terrific credit score. You simply have to manage money really well. Many people of normal means have high credit scores. So, when they see a lower credit score, they see a person who does not manage money well. You can change their perception of you by changing how you manage things. You may still only qualify for bad credit auto loans, but you’ll get a better interest rate. Errors on a credit report negatively impact score, which is a big disadvantage when trying to secure an auto loan interest rate

Here are a few things you can do, starting today, to increase your credit score and achieve a better perception of yourself by financial institutions. After completing all of these steps you may qualify for more than just bad credit auto loans.

1. Check Your Credit Report

You can quickly increase your credit score by checking your credit reports. It’s free to do this once per year. Obtain a report from each of the three major credit reporting agencies.

a. Check each credit report for inconsistencies or errors. Not every agency will have the same data points. Some agencies collect more data than others because they include aspects the others do not in their report. For instance, Experian lets individuals opt into a collection of data

from their utility payments and cell phone payments. The credit reporting agency then includes this in the calculation of the score.

b. Address report inconsistencies and errors to the credit reporting agency. Include proof of the correct information, such as payment, credit card or bank statements showing the payment dates and accounts. It will take a few weeks for the agency to correct the data, but once they do, your score will be recalculated.

2. Pay Your Bills on Time

Pay your bills on time. It sounds so simple, but it raises your score so quickly. You can increase your credit score after only six months of timely payments.

You can make this easier by consolidating your loans, either by taking out a consolidation loan that lets you pay off each of the smaller loans fully or by using a non-profit agency like CareOne that helps you contact each creditor and restructure your debt. This reduces your monthly payment to each creditor. It also results in a single payment you make to the non-profit that it then distributes to each creditor, for you. This method can quickly reduce your overall debt. Since another party makes the payment distribution and is legally required to distribute the funds in a timely manner, it means your payments are never late. This quickly raises your credit score by making on time payments.

3. Raise Your Income

You can do this by asking for a raise at your existing job or by adding another stream of income. If you have been with your current employer for a while, ask for a raise. You can typically obtain a raise if you have been employed there for a substantial amount of time and have performed well.

You could add another income stream by getting a second job or starting a freelance business. Get a part-time job and work at it for a few months before applying for the loan. Six months is a good length before applying for a loan. You will need about six months of paystubs to show a loan officer.

Either bank the money you earn from your second job or use it to pay off existing credit cards and loans. This reduces your debt-to-loan ratio so long as you keep the credit card open after paying it off and that raises your credit score. If you choose the savings account option, you should take the account statements to the loan officer to show that if you did lose your job for a few months, you’d have means to still pay the loan payments.

You can earn money by freelancing as an appointment setter, personal assistant, blogger on a topic you know well, Lyft or Uber driver or some other pursuit. While you will not have traditional pay stubs, you can take print outs of your PayPal reports that show your earnings. You can also show the results of your labor by banking everything in a savings account.

4. How Budgets and Loan Calculators Help

You can find out what you need your income level to be to obtain a loan for a specific amount. Look at your current budget. Your total loan repayments including the bad credit auto loan or motorcycle loan you want to obtain, should equal less than 30 percent of your monthly income. If it would all require more than 30 percent, you have three options:

  1. get a second job or freelance to increase your income,
  2. pay off existing debts before applying for the new loan,
  3. apply for a smaller loan.

Use a Loan Calculator

You can also use an auto loan estimator to help find the affordable options for you. You can calculate your monthly payments using various options for down payment and loan term, plus interest rate. This lets you see how easily certain options fit into your budget.

While you may have your heart set on a brand new, $30,000 car, you may be able to reasonably afford a $15,000 used car. It can be the same model car, but a different year. Perhaps you have Norton or Harley-Davidson dreams, but a used Yamaha budget. Find vehicle options that fit your budget, not vehicles that kill your budget.

Once you are ready to apply for bad credit auto loans or motorcycle loans, you can do a few things to increase your chances of getting a “yes” from the lending institution. Instead of traipsing around town trying to speak to each bank and credit union, use Loanry to go auto loan shopping. It offers much more than bad credit auto loans and simplifies your process.

Motorcycle and Auto Loan Shopping with Loanry

Loanry provides individuals and businesses with a simple process for vetting financial lenders. Its participating institutions offer a plethora of loan types, including no credit or Bad Credit Auto Loans. Follow these quick steps to use this loan mall that makes finding a loan a breeze.

  1. Visit Loanry Auto Loans
  2. Choose the loan type you need at the top of the screen.
  3. Complete the short form with your basic information.
  4. Loanry sorts through its database of financial institutions.
  5. Loanry may help you find a lender
  6. You complete each lender’s long application.
  7. A lender work with you directly.

Shopping for an Auto Loan: What You Should Know

Loanry does not make loans. It simply helps you find a lender. These lenders work with Loanry’s site to offer auto loans products  including bad credit auto loans. That cuts down on the research you have to do. Using Loanry helps you determine which institutions offer loan products who may be willing to work for your need situation. It also saves you unneeded application fees to banks or financial lenders whose qualifications you did not meet.

The Loanry tool cuts your research time, so can determine the appropriate lenders to approach more quickly.

Using it also may reduce the number of requests on your credit report. These report requests happen every time you apply for credit, no matter what type. Each application for bad credit auto loans or motorcycle loans creates a request that lowers your credit score just a little. If you apply for many credit cards and loans, you will reduce your score, even if you did not take any out or were refused for each one.

While Loanry is not a lending institution, it does offer educational articles and tools to search for auto loan lender for bad credit – to help its users make better decisions about money. It offers these financial educational articles for free.

Once you are ready to apply for loans, you may find that your bad credit offers you limited opportunities. Before you go to a loan shark, explore your other options. While you will still end up paying higher interest than someone who could afford a prime interest rate loan, you do not have to resort to that high of an interest rate. You do have alternate options though since the Internet has spawned the peer-to-peer craze.

Try a Different Kind of Legitimate Lender

You have new legitimate bad credit auto loan opportunities besides banks and credit unions. Approach peer-to-peer lending services. This uses a one-to-one concept similar to that of an angel investor, except, you pay back the funds in full with interest.

Also, approach online lenders. Some offer smaller loans, some offer no credit or Bad Credit Auto Loans.

Either way, conduct extensive research on any lending institution of any type before you apply or provide any identifying information such as your Social Security number. Have an accountant look at the loan product of any non-traditional lender, before you apply and definitely before you sign any papers. Once you find a few options you’d like to pursue, you are ready to make your applications. Here are a few tips to help you obtain the best results from your bad credit auto loans applications.

Request a Loan Officer Meeting

If you have bad credit, you can help yourself by requesting a meeting with a loan officer. Even your local bank may have an online application, but you can request a loan meeting at the local branch of their organization. These meetings improve your chances of a “yes” from the bank or credit union by showing them your personage – presentation and demeanor – and important finance information that does not appear in your credit report or go into your credit score.

Paperwork to Take With You

Your credit score reflects your repayment of credit cards and loans. What it does not include is your monthly mortgage or rent, bills or private loan payments. Experian, Equifax and TransUnion do not get these items reported to them nor do they always have accurate information on your employer or salary. Take your pay stubs from all jobs you maintain with you to the meeting proving you have regular employment. This also establishes your amount of regular income on a regular time cycle, such as weekly or monthly.

Take with you statements from your checking accounts, savings accounts, Certificate of Deposits, stocks and bonds and/or retirement fund or annuity. If you receive any type of supplemental income, such as alimony, child support, veteran’s benefits, etc. you should include documentation of this. All of these income streams document your ability to continue payments if your employer reduces your hours or terminates your employment.

Present this documentation to the financial lender to strengthen your application. You can also take in proof of your timely payment of monthly bills to utilities, your phone company and your landlord. These items show that you pay on time and in full.

Sometimes, no matter what you do, the bank determines that it cannot offer bad credit auto loans to you unless it has evidence you can pay it back immediately if needed. They do this by requiring you to have either a cosigner or collateral.

The Cosigner Option

This is common for teenagers or college students buying their first car. These two groups rarely have credit established, so they can only qualify for bad credit auto loans. You use a cosigner to boost your credit worthiness.

The term cosigner refers to an individual who applies for the loan with you. They add their awesome credit score to yours to help you obtain the loan, but in the process, they accept absolute responsibility for the repayment of the auto loan. While you actually make the payments, if you miss one, it hurts their credit, too. If you default on the loan, the bank expects them to pay for it. This risk transfer takes the pressure off of the lender but means it takes special person to step up as your cosigner. In many cases, a parent will cosign a loan for their teenager.

Put Up Collateral

You can put up collateral for a loan. This provides a guarantee to the bank that you will pay back the loan. Collateral refers to a tangible asset that the bank could claim, then sell, to cover the amount of your loan. Examples include a boat, houseboat, vehicle, land or stocks and bonds.

Save Up for a Big Down Payment

You can improve your ability to qualify for a loan easily. Save your money up for a large down payment. This reduces the amount of money you need to borrow. It can also help you get a “yes” from the lending institution. Another plus is it can net you a lower interest rate to put down a larger down payment.

Smart Money Tip!

“Know the price other dealerships in the area are offering so you can make an informed purchase,” Joe Pendergast, the vice president of consumer lending for Navy Federal Credit Union in an interview with Credit.com.

Research the Autos or Motorcycles

Do a bit of local research before you apply for a loan. You need to find out the car or motorcycle you want and how much it will cost you locally. The prices you see online do not relate to what you’ll find locally. So, as Shutt advises, start your research online to broadly determine vehicles you can afford. This also prepares you for visiting local car lots.

At the local lots, the salespeople will try to do their job – to get you to spend as much money as possible. Remember that the car you choose determines the loan you need. Choose a reasonable car to borrow less and pay less interest.

Show what a tough negotiator you are by pitting one dealer’s price against the other’s. Many dealers will match or beat the price of the other’s and that could get you a rebate, discount or other special savings. It’s your job to get yourself the best deal on a car.

It’s Loan Application Time

You have done your research and you think you are ready to buy. You’ve also researched various loan options and have looked at the cars. You have priced them. You are ready to obtain your financing so you can make your big purchase.

Car Lot Financing

Beware of using the car lot’s financing. Some car dealers mark up the interest rate from the one the actual bank rate, then the two split the excess interest fifty-fifty. Carefully read any offers from car lots partnered with credit unions, too, because they often do the same thing. Apply directly to the credit union to get the best rate.

Loanry Listings

Revisit your interaction you received from a lender who use Loanry. Read their terms carefully. Choose from them one and make your application. If they extend a loan to you, you can go purchase your car quickly. Some lenders that use Loanry deliver the funds electronically and will deposit the funds into your bank account within a couple of days. You then make your purchase.

If you get turned down, you can keep auto loan shopping. They may have a slightly higher interest rate or some other terms that made you rank them lower than others, but you may get a “yes” from them when you got a “no” from the first bank.

However, remember that each application could create a hit on your credit report. Using Loanry may reduce these hits, but if you apply directly to local banks or credit unions, each of those application creates a unique hit to your credit report which lowers your score a little bit. An application through the car lot does the same thing.

Even if you do not get a yes, you need to stop applying if you get three “nos” in a row so that you do not damage your newly re-built credit score excessively. It could be time to ask for a private loan from a parent or guardian to fund your car, truck, moped or motorcycle purchase. You can borrow the money from family and create a monthly or weekly repayment schedule. This gets you on the road without further damage to your credit.

On the Car Lot

When you go to actually make the purchase, the sales person will try to upsell you. Do not fall for it. Stick with the vehicle you have decided to buy in advance.

Stick to the total value of the vehicle you want to buy. Whatever you do, do not let the salesperson trick you into saying what monthly payment you can afford. They will simply manipulate other factors of the loan, such as its duration, to make a more expensive vehicle seem affordable. You are not getting a deal. This is called the “monthly payment scheme” and every car salesperson gets taught this.

If you are approved for a $17,000 loan, then buy the car or motorcycle that you had chosen in the first place. You will end up with the vehicle you researched at the price you planned on paying. You will already know the loan duration since you researched it. Remember, the duration combined with the interest rate of the loan determines how much extra you will pay to the financial lender for the privilege of getting funding for your car purchase.

Buying a car with bad credit can still be done. You simply need to start earlier in the loan process with your research. Loanry can help with that. Let Loanry help you find an auto loan lender for bad credit online today.