Second Chance Auto Loans

Those With Poor Credit can Still Get a Bad Credit Car Loan

Jul 18, 2009

With a bit of income and 20% down payment, those with bad credit can probably finance a car even in this tough credit environment with a second chance auto loan.

Many consumers have experienced problems with late credit card payments and late mortgage payments. Those troubles frequently lead to bad credit scores or even bankruptcy. Even after the consumer has caught up on the payments, the resulting damage has been done and it becomes difficult to finance the purchase of a new or used car. The financial crisis in the banking industry has made lending very tight and more difficult.

Nevertheless, there are many lenders who specialize in second chance auto loans that cater to those with weaker credit profiles. As long as the borrower has a way to pay back the loan, bad credit car loan lenders can often work out the underwriting so that the borrower can get the car. Keep in mind that interest rates will often be much higher than those available to customers with good credit since the borrower is considered high risk.

Picking the Bad Credit Auto Lender

The first step is to get a free credit report and possibly a FICO score to figure out how bad the situation is. If the credit report is bad, eliminating prime lenders from consideration will save time and hassle.

Because some second chance auto lenders work through dealerships, it is necessary to find out from each car dealer if sub-prime customers can be financed through the dealership for those who don't have second chance financing lined up beforehand. Most dealerships only work with prime lending institutions so this extra legwork is needed before going to the dealer without a pre-approved bad credit car loan.

Second Chance Auto Loan Requirements

The factors lenders look for in financing a bad credit car loan are the same as those for a prime loan. However, the requirements are more relaxed. Some of the most important factors in approving or denying an application include:

Lower the Amount Borrowed

Pick a car with a purchase price and monthly payment that's reasonable for the borrower's income. Although second chance auto loan companies will work with a customer to get a car, they will not be able to pull off miracles such as a brand new Ferrari. A gently used sedan is probably a much more appropriate choice that can lower the monthly payment and help pass loan underwriting.

In many cases, the dealership will go through the borrower's financing before looking at the cars. The dealership will determine the maximum loan amount and price of car that pass the underwriting requirements of a second chance car loan company. The reason for looking at financing first is because the sub-prime borrowers often cannot fit higher priced cars into their budget. Thus the customer will only look at cars that he can afford. If the second chance auto loan has been prearranged, this financing step at the dealer can be skipped just like with a prime lender.

After the loan and car have been selected, the borrower can finally sign the papers and drive off with his car. By going through a lender that has second chance auto loans, a borrower with a low FICO score can likely buy a car with a bad credit auto loan specially designed for him.

Opsitnik, Liz. "As Credit Crunch Affects More People, Non-traditional Dealerships Might be an Option." AutoLoanDaily.com (June 30, 2008).

The copyright of the article Second Chance Auto Loans in Personal Debt Management is owned by John Wu. Permission to republish Second Chance Auto Loans in print or online must be granted by the author in writing.