The economic downturn of late has had far-reaching effects in the marketplace. So, if you have happened upon this article, you might be considering buying a car at a time when you have bad credit and it may not be something you are used to dealing with. The good news is that the auto industry is used to it. Very used to it.
Remember that the more people in the marketplace with poor credit (or worse), the fewer people with good credit the lenders can lend to. So they are faced with either broadening their lending standards, or downsizing and waiting out the market for better days.
Whenever a lender lowers their approval bar, they raise their lending stipulations (things they make you prove) accordingly. These stipulations, along with another factor or two, are often all that stand between you and getting approved for your next car.
1. Income – Income is not how much you say you make, or even how much you actually make, but rather what you can prove you make. Acceptable income proof tends to be fairly rigid. Lenders want a pay stub if you are a W-2 employee, or at least 2 years of tax returns if you are self-employed or a subcontractor. Tips are not considered income when they are not contained within the above proof.
2. Stability – Just as the lender wants you to prove your income, they also want some assurance that you do not wind up losing your job every few months. If you can prove you have been with the same employer, or at least the same field, they feel better about their risk.
3. Budget – Though it sounds the same as income, budget is different. Income is how much you make. Budget is the percentage of your income that a lender could allow for a vehicle payment (usually 13% to 15%). Often, you’ll want to see how much a lender will budget you for before you select a vehicle.
4. Taste – Your taste in vehicles can sometimes influence the decision on the part of the lender. For example, you need a car loan and you have two repossessions, a foreclosure, you have filed bankruptcy, and/or you have not paid your child support in a while. So the lender asks What kind of vehicle does he want? and the finance person at the dealerships answers An Escalade. Can I just say this, hungry people do not usually demand lobster. If that does not make sense, this article will not help you.
5. Attitude – This stuff never winds up in writing for a dealership or a lender who is making the decision of whether or not to approve your loan, but having said that; if you are unable to keep your appointment, if you are unable to return your calls, if you are unable to show up with all of your necessary materials to get a car that you want, why would they expect you to work as hard as you can to make your payment? I’m just saying.