When applying for car financing, the last thing you want to present to the bank, car dealership or private lender is a bad credit score. Whether you forgot to pay a utility bill a year ago or have unpaid student debt, things are happening. Luckily, you can still get car financing even with a bad credit score. Here are some tips to achieve this.
Demonstrate your ability to repay your loans
While credit scores are an important factor that lenders use to determine your creditworthiness, it’s not the only factor at play. They also use other metrics to assess whether or not you can afford to make loans. payments on time. For example, if you already had a mortgage on a car or house, a lender might check to see if you were able to repay that loan on time or if you defaulted.
Know what information they will ask you for
It’s never a good sign from a lender’s perspective when they ask you about crucial financial information or documents and don’t get a straight answer.
In most cases, you will be asked about the following:
- Source of income. Prepare documents that prove that you have a stable job and income. This includes printed pay stubs, child support, SS benefits, and disability benefits.
- Debt to income ratio. You can determine your DTI ratio by dividing your monthly debt payments by your gross income. For example, a DTI ratio above 45-50% can be a red flag for some lenders who have very strict requirements.
- Use of credit. If you have outstanding loans and open credit card accounts, lenders will want to know how much of that line of credit you are using. For example, if you max out multiple credit cards simultaneously, this can be a red flag for lenders.
- Payment history. Lenders want to see if you can make monthly payments on time from your past debts. A great way to meet monthly payments is to refinance your car or home loan for lower interest rates. Like Lantern by SoFi, sites now allow seamless car refinancing with your mobile phone.
Make a large down payment
There’s no magic number for a down payment, although most professionals recommend putting down at least 20% on a house or car. However, making a large down payment can have several advantages. First, it can improve your chances of getting loan approval, especially if you have bad credit. Lenders take on more risk without a down payment since they likely lose all the money they lend you if you fail to repay your loan.
Getting car financing is also a matter of maximizing your options. Shop around with different lenders and compare their rates and repayment terms. These days, it’s easier to compare all available lenders, thanks to apps and websites like Lantern by SoFi, which consolidate your options in one central location.