Getting a Car Loan With Bad Credit: Three Factors Considered by Lenders

There is a tendency for those of us with low credit ratings to become quite disheartened at the thought of applying for a loan of any type. Even when seeking a new car, the faith in the success of an application for a car loan with bad credit can be very low. But the truth is that so long as the right information is provided, approval is possible.

The fact is that lenders tend to be interested in only a handful of factors associated with an application, and the credit rating is just one of them. What is more, thanks to the arrival of online and low-interest loan providers on the market, car loans with poor credit are more easily accessible than ever before. So, there is little reason for such low expectations.

There are three principal factors that lenders look to before assessing the risks involved in lending to a particular applicant. Credit history is one of them, but so too is the employment history of the applicant and whether a cosigner is included. Car loans approved despite bad credit are only given the green light after balanced consideration of all three.

Your Credit History

The most obvious factors that lenders look at is the credit history of the applicants, though the reason that car loans with poor credit are available means it is not the most influential factor. What interests lenders with how the credit score became slow low.

For instance, is it because of a poor attitude towards their financial obligations? Or is it down to a run of bad luck, such as temporary unemployment or falling income? A car loan with poor credit can be approved if the lender believes the risk is lower that the credit history suggests.

Your Employment History

Having full-time employment and a dependable source of income is all important from the point of view of the lender. Confirming an ability to meet repayments is essential to get car loans approved despite bad credit. A lender will generally want to see at least a 6-month history with a current employer, as well as pay slips or bank statements confirming the income amount.

If the lender calculates that there is an insufficient debt-to-income ratio, with 40:60 the accepted maximum, then they will reject the application for a car loan with bad credit – even good credit scores cannot save applicants from this ratio.

A Cosigner is Included

The addition of a cosigner can make the application process a lot easier. A cosigner offers to cover the loan repayments should the borrower get into difficulties, a factor that effectively guarantees that a car loan with poor credit will be approved. The reason for this is that the risk factor associated with the loan is reduced dramatically.

However, it is important that the right person is chosen as the cosigner if an applicant is to get the car loan approved despite poor credit. Cosigners with bad credit histories are unlikely to provide the desired certainty.

Looking for the Right Lender

While it is useful to know what providers of car loans with poor credit look for, it is also necessary for the applicant to consider who they are going to apply to. Going to the local bank might seem the obvious move, but car loans from traditional lenders tend to come at high rates of interest and some very strict repayment conditions.

Online lenders tend to offer much better loan packages because they specialize on loans with poor credit. Therefore, it is easier to get a car loan approved despite bad credit online, and with manageable terms, than from more familiar lenders. Of course, the same three factors remain important as you seek approval on car loans with poor credit.