Like most people, there comes a point in your life when everything seems to be going wrong. Whether it’s a divorce, getting laid off a job, a failed business, or sickness in the family, the sad reality is that most of us aren’t prepared for a big crisis. When plights of life strike, one of the first tangible aspects of life they hit is our financial health. For most people, it’s not just about needing to adjust to a smaller budget. It’s about suddenly not being able to make a loan to alleviate the financial loss; or not being able to get a car for your job; or even not being able to move to a new home — all because of a negatively impacted credit score.
While bad credit history doesn’t equate to you having a poor work ethic or being irresponsible with finances, banks and most other traditional lenders would rather not take the risk. The truth of the matter is that the world of financing (for vehicles, personal loans, or otherwise) is still a statistics game. Statistically, people with bad credit are bigger risk borrowers. This is why you’re having difficulty in getting an auto loan from a dealership or a car loan from the bank.
While people would typically say it’s a bad idea to even think about big ticket purchases like cars or getting into auto loan agreements when your credit standing is poor, sometimes you just need a car to get back up on your feet, or to get to that new job cross-state, or even to (actually) start improving your credit rating. But when banks and traditional lenders won’t let you; how are you supposed to do it? Before getting to the how, there are a few things for you to consider:
Get a co-borrower
One of the easiest ways to secure bad credit car financing is through getting a co-borrower with good credit to go on your application. Whether it’s a parent, partner, or spouse, your chances of securing a car lease will drastically increase. This is because, on paper, someone else’s assets and income are combined with yours during the qualification process. So if there’s someone you trust and trusts you enough to be a co-borrower, you’re going to want to talk to them about this. Chances are, you’ll even get better interest rates.
Go with the little guys (Mom & Pop lenders)
Not everyone is comfortable with asking family or partners to become co-borrowers, or even have someone in their lives who are financially capable of being a co-borrower. When you have poor credit rating and getting a co-borrower is not an option, one of the best things you can do is to go with a smaller financing company. Unlike big companies like RoadLoans (US) and most banks, the mom & pop -ish stores like Alpha Car Finance (AU) are more likely to let certain qualifiers slide to get a new customer.
If you want to try your hand at traditional lenders, then one of the first things you should look into is your employment history. Take note that having a history of jumping from one job to another is a big red flag for most companies. This is because they’ll always be questioning whether or not you’ll be able to sustain this job and if not, how will you handle your repayments?
The length of time you’ve lived in an area or multiple areas is a big deal as well. If you’re the type to move addresses every six months then you might not be considered. The less likely you are to stay put, the higher risk for them.
Expenses Trump Income
For the smaller companies, a weekly income of $700 is usually the minimum. Now you would think that the higher your income, the better your chances of getting approved, right? Not necessarily. So long as you meet the minimum require of weekly income, the rule of thumb is always going to be expenses trump income. Even if you’re earning $3000 per week, a lender would still be wary of approving you if your expenses are $2900 per week. This means you only have $100 to spare for emergencies and your car finance. Now compare this to making only $700 per week but with expenses of only $300 per week. That $300 liquid in your cash flow makes you a stronger candidate for approval than if you’d have higher income but with higher expenses.
Have some money in your account
If you want to increase your approval rate with lenders, make sure that you have some money in your account. To investigate your income and expenses, financing institutions would ask you for (typically) last 3 months bank statements. Now if you only have $300 in your account, that might be taken against you. This is because of the assumption that people who don’t have a padded savings might not be able to fulfill their repayments during emergencies. But if you have a few thousands in your account especially over the last three months, you’re more likely to be considered even with poor credit standing or lower income because you have that safety net in case of emergencies.
Author’s Bio: Mark Yasay