The average national FICO score has reached 700 points for the very first time. It means individuals with credit score near to 700 will have an easy time in making a car purchase. But, not everyone has a stellar credit history. There are individuals with scores less than 600. Lenders have categorized them as bad credit buyers. And, such individuals may still face a hard time in getting auto loan approval.
Is it End of the Road for Bad Credit Car Buyers?
Every person’s car buying needs are different, and so is his credit situation. You may have a bad credit score just like your friend’s. But, it is possible that you may get approved for an auto loan, whereas he faces rejection. Remember that every person is different in the eyes of the lender. And, even though, two individual share same credit scores, lender look beyond the numbers.
When is having Bad Credit Okay?
When lenders are ascertaining your credit application, they do not make a decision solely on the basis of your credit score. They value the number but they also ascertain the cause leading to it. When it comes to a bad credit score, lenders categorize it into two parts: Situational bad credit and habitual bad credit.
1. Situational Bad Credit
If the reason behind your bad credit score involves an unexpected, unpleasant situation, lenders will consider the score as situational bad credit. Sometimes, loss of job, death of a close family member or a sudden illness can force to you make late payments. Lenders consider it less risky because the analysis of your credit report shows that you have been regular in making payments before the tragedy struck.
2. Habitual Bad Credit
If you have a habit of making late payments or missing out on payments, lenders will consider you a risky credit seeker. They avoid a habitual bad credit borrower with multiple bankruptcies, high debt-to-income ratio, and repossession. In such a situation, your credit history becomes a proof of your irresponsible financial behavior. So, if you fall in the category, you will have a hard time in getting a favorable auto loan deal.
Situational Bad Credit Buyer: The “Good” One
Lenders understand that maintaining a stellar credit score throughout the course of one’s life is difficult. There are situations which may lead to late payments. But, unless you make a habit of missing out on payments, they are ready to cut you slack.
Lenders consider situational bad credit buyers as “good” people because they believe that buying a new car can be your first step towards improving the score. By making regular payments, you will be able to increase it over a period of time.
Does every Situational Bad Credit Individual get a Good Deal?
Lenders will consider you in a positive light if you do not have a habit of making late payments. But, it doesn’t mean you are going to get the lowest possible rates. In order to find a good deal on your next car purchase, you must first sort your finances.
>>Have a stable job that is capable of paying off your debts.
>>If you are paid in cash, report it to the IRS so that lenders have a clear idea of your income.
>>Pay off a few debts to reduce your total debts and improve your debt-to-income ratio.
>>If you are on social security, apply for a joint loan to improve your approval chances.
>>When it comes to making payments, explain the lenders that you are not a repeat offender.
>>Choose an inexpensive car to ensure low monthly payments.
If your score is below 600, do not write it off as an end to your dream. You can still make a car purchase with bad credit. But, before applying for a loan, go through your credit report. Understand the cause behind the decline in score. If it is due to an unforeseen situation, get ready to explain it. The lender may treat your bad credit score as “good”. If not, make a big down payment to create a favorable impression in the minds of the lender and obtain a deal.
Want to buy a car? Do not let bad credit become an obstacle. Learn the reason behind your credit score and work with a subprime auto financing company. Apply with an experienced lender to obtain no cosigner auto loan and make a quick purchase.