The economy has always gone up and down. And every time it does, many people find themselves in difficult financial situations. Sometimes those situations get real bad, and when they do, credit is almost always affected. This is a sad truth and one that many of us have had to experience. And if you have ever had poor credit, like I have, then you know how limiting this can be to your buying power.
The good news is there are always financial institutions out there specializing in "sub-prime paper". In Credit terms, customers are either prime, near prime or sub prime. Prime customers are generally credit profiles with 750+ credit scores, Prime can be as low as 680-690 and subrime are FICO scores under 680. Paper is simply a nickname for a loan.
Sub prime interst rates are higher than prime or near prime. But it is not just your credit score that determines what your interest rate, if approved, will be. Typically, it is an equation that takes in to consideration not only credit score, but also a number of other things. Time on the job and time at the same home address can be huge factors. Money down and trade equity are also weighed heavily. It is not uncommon for someone with a poor score but a well established stability on the job and residence to be approved for a pretty good rate.
The best plan is for you is to be reasonable about what you want to buy. Bells and whistles are wonderful but when your credit is compromised, the more reasonable loan request you make goes a long way towards securing an approval. Second, bring some money to the table. We see far too many folks that want to borrow 25000 dollars but have little to nothing down. It is probably not going to happen. If you are already a poor risk based on your credit history, asking for a ton of money with no "skin in the game" is a sure fire way to get declined.
In today's market, select first a sedan if you can, then a sport utility and lastly a truck. Again, the more expensive the vehicle the less likely you are to gain an approval. Even more important. Trucks typically have huge loan payments.
Bring as much money as you can to the transaction. An old colleague of mine once said, in jest, that a lot of money down can hide a "multitude of sins." It is true.
If you have poor credit, understand that the reason for your poor credit is irrelevant to most banks and financial institutions. All they car about is your ability to pay, your stability, and your prior payment history. Divorce, job loss, and a myriad of other legitimate reasons for having poor credit are not something taken in to consideration. Do not take it personal.
Come in to the situation with a cosigner if at all possible. Preferably someone you are related to. If you are self-employed, make sure you are depositing as much as you can in to the local checking account. Sometimes this is the only way we can verify income. Many banks will consider the last 3 months of bank statements as "proof of income".
Always bear in mind that you are likely to be required to prove basic things. Your income, and proof of residence are the most commonly requested items we see.
The last big thing is to check reviews for the dealership you are buying from. The subprime market is rugged, and some of the players do not help it. You will likely be buying a car "as is" so make certain you strongly consider purchasing, if offered, available extended coverages and gap insurance if you do not have a large downpayment. Also, make sure the finance company you are making payments to reports your on-time payments to the local credit agencies.
I went through this too. Often, the first vehicle you purchase when or after having poor credit is not the exact one you want. Smile through it, make all your payments on time, and let your payment history elevate your credit score and ultimately you will have a better chance of getting exactly what you want.
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