Purchasing a Vehicle – You Need a Loan

by admin on January 15, 2014

People apply for bad credit loans to purchase of a vehicle, for home and car repairs, and more. There are different providers, including payday lenders and brick-and-mortar businesses. Non-bank lenders offer very high interest rates and feature instant approval. Applicants are asked to provide information such as their income level, employer, and more. Most lenders offer bad credit loans with high interest rates because of the higher risk of default. Thus borrowers end up paying a lot of money in interest charges. Financial institutions offer both fixed and variable rates. Finance charges are a major consideration, but timely payments help build credit.

Financial institutions offer better terms and interest rates to borrowers who apply with a guarantor. This is usually a person with a very good or excellent credit history who guarantees timely repayment. It is important to make timely payments because the guarantor takes risk. Another option is to apply for a secured loan and offer some valuable asset as collateral.

If your credit score is between 550 and 680, you are a risky borrower for financial institutions. Brick-and-mortar banks base their lending decisions on factors such as your credit report, debt to income ratio, mix of credit, income, and other factors. Check your credit score before applying. Your score is based on different factors such as your payment history, length of credit history, types of loans, and more. Borrowers with poor credit have other options, depending on the vehicle and loan amount. In addition to regular income, other sources may be acceptable. There are different sources of income such as sick pay benefits, retirement plans, and child support.

There are taxable and non-taxable income sources such as employer-provided insurance, disability insurance, investment instruments, inheritance, and tax. Steady employment means that you are a salaried employee with an income that can be verified. Many lenders require that borrowers present information such as their employer’s name and address, telephone number, etc. The decision to apply for a bad credit loan depends on many factors, the main one being the borrower’s ability to make payments. Borrowers can choose from different financial institutions among which banks and individual lenders. Credit unions offer affordable rates to their members but borrowers with poor credit may not qualify. Some borrowers resort to alternative sources of financing, but the interest rates are higher. There are “buy here, pay here” type of dealers that offer higher interest rates. Check with your bank or credit union before you approach a dealership.

A third option is to rebuild your credit before applying. Make regular card and loan payments to build or rebuild credit. And try to explain your situation to the loan officer. Another option is to borrow from a family member or friend.

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