Bad credit doesn't necessarily need to keep you from securing a car loan. While ultimately the lender must decide whether your application for a bad credit car loan is approved, there are steps you can take to increase your chances of approval.
Step 1: Reduce the Amount You're Borrowing
If you can reduce the amount that you're asking to borrow, you'll improve your bad credit car loan application in two ways.
First, the monthly payments on your loan will be more affordable if you borrow less. This will ease your personal cash flow, and the lender will be less concerned about your inability to make a payment.
Second, you'll keep your debt-to-income ratio lower. This is a ratio that measures how much you pay in debt each month against how much income you bring in each month. Lenders will only approve loans that remain within a certain ratio threshold, and they'll deny even drivers with good credit if their debt-to-income ratio is too high with a particular loan.
There are several ways you can reduce how much you need to borrow via a car loan. For example, you might:
- Look only at vehicles below a certain price point
- Apply a trade-in vehicle's value toward your new car
- Save up and put more down at the time of purchase
Additionally, a car dealer may know of some rebate or incentive programs that are available and would further reduce the amount you need to borrow.
Step 2: Provide Documentation of a Reliable Job
The lenders that auto dealers work with might be more inclined to look past bad credit if you can prove that you have a reliable job. A reliable job provides income, with which you can make monthly loan payments. In some situations, a reliable job is more indicative of your situation than your past credit history.
There's no one document that proves you have a reliable job, but a few different items might help you support your claim. Bring any W-2s you have from the past year with you, as these will show how much you made from a particular job over the course of the past year. Also, ask your employer for a letter stating that you're gainfully employed and have held the job for some time.
Step 3: Talk with the Finance Manager
Ultimately, people actually make the decision regarding your loan application. If you make a strong case to an auto dealer's finance manager, they might be able to help you get approved for a bad credit car loan. Sometimes, there are things they can do for people in special situations.
For more information about bad credit auto loans, contact an auto lender in your area.