Liberty Auto Loan: The basic information you need to know about Bad Credit Auto Loans!
Car loans are about the only way a car purchase is going to be made. With new car prices averaging $28,000, there’s very little likelihood that people will be rushing up to a car salesman and whipping the cash out of their wallets. With that in mind, getting the financing to buy a new car can be as easy or difficult as you want it to be. You’d be surprised how much power you have over both the sales, and the financing, process. While buying a car is a large financial move, there’s know need for you to shy away from the practices that go into sales, auto financing, and bad credit car loans. You are the customer – and the customer is always right!
Going into a car loan cold is where mistakes get made. Learn a little about what it takes to finance a new car and don’t swallow anything that doesn’t fit with the things you’ve learned, or fly in the face of reality. While the loan industry is made up, primarily, of honest hardworking business people, there are hucksters who will do all they can to separate you from your money without stepping over the legal foul line. The simple rule is: If it’s too good to be true, it probably is.
Where to get the loan has stumped philosophers for thousands of years – well, maybe not that long. Many industry pros make a strong argument for getting the loan before you go to the dealership. But, since most car loans originate at the dealership where the car is purchased, most consumers don’t follow the word of these advocates. What most people don’t know about dealership financing is that they’re not doing business with a lender, but several lenders and auto manufacturers. The dealership’s finance manager is another salesperson who is simply marketing loan packages for one of many banks working off of commission for each loan sold. This tends to put the customer’s best interests second in line, and you must be very alert if you try to finance through the dealership.
Dealership financing tends to have higher than average interest rates, not because they’re assuming a greater risk than other lenders, but because they have more mouths to feed along the financing food chain – including the finance manager’s commission. During the financing process, you will also be subjected to the up-sell. The finance manager will try to convince you that you need to add certain options to improve your driving experience. These are almost certainly useless services or add-ons that will only enhance the sales office’s commissions. It’s easy to resist the high-pressure tactics you’ll face at the dealership’s financing desk. Just remember that if the last line of sales sees that you’re slipping away from the agreement, he, or she, will do just about anything to avoid blowing the sale. Seeing you walk away from the purchase is the last thing they want.
Banks are where the money’s at. Your bank or credit union are the best places to start when applying for bad credit car loans. Because you have a checking account and, if you’re a smart cookie, a savings account, you have a business relationship and should be able to negotiate a car loan, even with your credit situation. If your bank is reticent to work with you on financing, it might be time to move your money elsewhere. If your bank is willing, however, to discuss a car loan, you will have to show you can pay it off. With your bank’s ability to access your finances, check the regularity with which you make deposits, and withdrawals, they can make a quick determination for approval. Interest rates will be whatever your bank regularly affixes to car loans for bad credit, but that may be open for discussion, especially if you’re prepare to make a big down payment.
Lending companies are big in the car loan market. They are more inclined to accept bad credit borrowers these days since there are so many of you out there to sell products to. Given the fact that there is a great deal of competition in the market, you have more power than ever to negotiate a loan to fit within your budget. There is a tipping point with regard as to how low an interest rate on a bad credit car loan will go before a lender will stop working with you. Negotiate properly and check available interest rates from a number of lenders before you sit down to start the loan process.
Negotiations are key to getting the loan you want. Although the web has automated a lot of the lending process, nothing beats human-to-human contact. Your car loan should be a personal experience because you need to make an impression on that lender. Character can be a big influence on how the loan turns out, from application to approval, when working from a position of bad credit. In spite of having less-than-perfect credit, your ability to demonstrate that you will be enthusiastic to repay the loan can make the lender a little more forgiving when attaching interest rates. Your income will also be a factor in that you need to show the lender you make enough money to service the loan in addition to covering any other payments you make during the course of a month.
Debt-to-income ratio is a characteristic that effects loan approval and interest rates. If you carry too much debt versus how much money you make each month, the lender will not approve your car loan. Too much monthly debt indicates a pattern of irresponsibility to the lender and can kill any negotiations if you’ve too liberal in using credit cards. Where you’ve kept credit usage under control, the lender will be more open to approval at reasonable interest rates when there’s a safe buffer between your income and expenses.
Interest rates have been mentioned frequently here due to the fact that this is what you’ll be paying to rent someone else’s money. Yes, it’s that simple. Interest has the function of protecting the lender from the risk of you failing to pay off the loan and to generate profit for the lender on the sale of the loan. These may be odd concepts to you when it comes to car loans. But, a car loan is no different from any other product or service. The lender sells the loan to you and reaps a profit from that sale. These shouldn’t be confused with lending fees. Some lenders charge fees apart from interest for services related to approving your loan. The interest is strictly a function of the monthly payment agreement the two of you have arrived at.
Interest rates may be described as APR, or annual percentage rate, and denotes the percentage of your balance that will be added annually to the loan payments. Annual interest can remain fixed for the entire term of the loan, or it can be a variable rate that changes according to a specified schedule or the current prime rate. Both have their functions along with advantages and disadvantages depending on your situation. Both are gamble. Fixed rates bet on there being little change in the prime while variable rates take the chance that prime rates will fall. Since the economy is always in flux, both have a chance of costing more money than you’d like. Where a fixed APR may edge out the variable APR is in the fact that there are no surprises waiting around the corner and you can safely set a budget.
Variable rates go hand-in-hand with, what is known in the industry, as a teaser rate. The teaser rate is a marketing tool to get new borrowers into the lenders’ door. These are often advertised as “0% Financing”, or attached to bad car loans with very low advertised rates. These rates can save you money in the first year of a car loan, but can end up costing you much more money over the remainder of the loan’s term. Any savings you thought you might enjoy are gone when you’ve finished paying off your car.
Bad credit car loans are going to have a higher interest rate. There’s no way you can get away from that. But, you do have the ability to exert some control over how that interest will affect your budget. Your power begins when you drop a big down payment on the car. This has two very positive effects on your car loan in that the lender will offer a lower interest rate, due to the fact that you’re more invested in the car, and you will be paying interest on less money because you’re getting financing a smaller balance. If you’re ready to buy a car, you should be ready to pony up a healthy down payment. “No Down Payment” car loans are a common marketing tool, and you should stay away from them especially if you have bad credit. These financing deals make it possible for you to buy a car with a small outlay of cash. But, this money doesn’t magically disappear. What you would’ve eliminated from the loan by making a real down payment, will now be stacked onto the balance. Make no mistake, this will cost you thousands of dollars more in the end.
But, how does a lender know you have bad credit? It looks at the numbers – yep, numbers. Credit scores are an integral factor in the lending process. What you’ve done with credit in your life is boiled down to a series of numbers compiled by companies like [clink id=”2″ target=”_blank” title=”TransUnion” rel=”nofollow”]TransUnion[/clink], [clink id=”1″ target=”_blank” title=”Equifax” rel=”nofollow”]Equifax[/clink], and [clink id=”3″ target=”_blank” title=”Experian” rel=”nofollow”]Experian[/clink]. Using a process developed by [clink id=”11″ target=”_blank” title=”FICO” rel=”nofollow”]FICO[/clink], the Fair Isaac Corp., these credit reporting bureaus take all of your credit information, and turn it into a three-digit number between 300 and 850. This scale is divided into five categories and where your score lies determines what kind of borrower you are.
The lender uses your credit scores to get a quick picture of how big a risk you are when it comes to lending you money, and you’re in the bad credit category if your score falls below 620. But, what if your score is at 619 and the lender says your credit is very bad? This is why you need to know all of your credit scores. While all credit scoring bureaus use the same processes for computing scores, they have different methods of analysis giving different values in the end. Get them all, and know them all. You only have leverage in the loan process if you know exactly what your numbers are. If a lender says your credit stinks, whip out the numbers to counter that your numbers say you’re just below the average credit mark. Your wallet will be glad you did.
Your credit report, on the other hand, is a totally different animal. A fresh credit report is generated each year and contains detailed information on your credit activity including, new accounts opened, accounts with unpaid balances, accounts with money left to spend in them, and those you failed to pay off. Every plus and minus is listed which means it holds a ton of information – and that’s where mistakes can happen. Errors do crop up in credit reports, and it’s up to you to find them and dispute them. With errors taken care of, you might find yourself not needing a bad credit car loan at all. You can request your annual credit report for free each year from any of the credit reporting bureaus, or from [clink id=”4″ target=”_blank” title=”AnnualCreditReport.com” rel=”nofollow”]AnnualCreditReport.com[/clink].
What you need to know about bad credit car loans is that they are not impossible to get. With a market devoted solely to providing financing to people who have less-than-perfect credit, you won’t have any trouble finding a lender who can provide the right loan for you. But, if you find the selection of lenders a bit overwhelming, or don’t know exactly where to start, try going to LibertyAutoLoan.com. LibertyAutoLoan.com is a service which connects you with affiliated lenders and car dealerships across the country. From a safe, secure website, you can make the decision on who to do business within your own backyard, or anywhere in the United States. When shopping is made easier, you’re more likely to spend money wisely. That’s the goal of Liberty Auto Loan – easy choices, wise decisions.