Bad Credit Car Loans : Myths and Facts
Bad Credit Car Loans Myths and Facts
Many people interested in learning about the facts surrounding bad credit car loans often have misconceptions about how their credit scores influence auto financing terms. How credit affects loan terms, specifically a borrower’s interest rates and monthly payments, can be a confusing subject for those seeking auto financing.
Our Louisville, Kentucky dealership is often contacted for advice regarding their credit and how to improve their scores. As a result, Oxmoor Mazda is providing this valuable information to our Kentuckiana nieghbors to help them better understand the complexities of the credit system and how to expertly navigate the bad credit car loans process.
Studies show that borrowers who stay well informed about their current credit status have a greater chance of obtaining superior financing terms from auto dealerships, especially those specializing in bad credit car loans.
When it comes to bad credit car loans, it can sometimes be difficult separating fact from fiction. Many people believe stories they have been told by their friends, business associates, or even trusted advisers, regardless of the information’s validity. In some instances, the information may once have been true, but is no longer applicable.
In other cases, advice about obtaining auto loans with low credit scores is simply one person’s “gut feeling” or opinion with no basis in reality. Despite what some may believe, the rules governing credit apply to all geographic regions.
Regardless of whether you live in Louisville, Kentucky or Lexington, Kentucky – auto financing with bad credit scores work the same way. That’s why it is vital to understand the factors that influence the decisions of a bad credit car loans company.
Luckily, Oxmoor Mazda’s vast network of local Louisville lenders, as well as national and regional Kentucky banks, make it a leader in special auto financing. Our exceptional team of knowledgeable financial experts offers local Kentuckiana borrowers the strongest possible opportunity to secure affordable auto financing, even with weak credit.
Income DOES matter, but it’s not the most important thing. While certainly helpful, a large income is not the only thing that companies dealing in bad credit car loans consider. When determining a borrower’s eligibility for subprime auto financing, banks and finance companies look at several factors.
Among the most important factors is debt. As we often tell our local Kentucky and Southern Indiana customers, analyzing a borrower’s current debt load helps auto loan companies specializing in weaker credit understand how much disposable income a person has available for a potential car loan.
This is often referred to as the debt-to-income ratio or DTI. Some companies consider only debts that appear on a borrower’s credit report, while others may include non-reported items such as utility bills, cell phones, and rent.
The type of auto financing available (interest rates, loan term, loan size, etc.) and the factors considered when determining bad credit car loans is often dependent on the individual bank or automobile lender’s underwriting guidelines.
Fortunately, our Louisville-based Mazda dealership has many strong connections to both local lenders and nationwide banking institutions.
When determining a borrower’s risk level, auto finance companies look at credit history. Generally, how a person has paid debts in the past is a good indicator of how they will pay debts in the future.
When there is no credit history, approvals can be even more difficult to obtain. Individuals with a poor credit history can still be approved, but may face higher interest rates or larger fees. Simply put, if you appear to be a greater risk, your approval may result in higher interest rates or fees.
If you have no credit history, local Louisville, KY banks and national lenders have greater difficulty judging your risk level because they are unable to use your credit history as a guide. As a result, companies that specialize in bad credit car loans may request greater documentation regarding your income. They may even ask for alternate payment history (such as utilities, cell phone bills, etc.).
While auto loans with no credit scores are certainly available, it is advisable to establish your credit as soon as possible to secure the very best car loan terms. This can be done by opening a secured credit card through a bank and paying on time (and in full) every month.
While it may seem like a good idea to close credit accounts that you rarely use, it can actually harm your credit scores. When calculating credit scores, credit reporting agencies such as Experian, Trans Union, and Equifax look at the length of time an account has been open.
Much like Kentucky auto dealerships that specialize in bad credit car loans, credit score companies base their decisions on past payment history. Long histories show stability and allow companies to more accurately predict your behavior and its severity.
For example, making two late payments on an account open for ten years is not nearly as concerning as making two late payments on an account open for four months. Simply put: the longer a credit account is open, the better.
When pulling a credit report, credit agencies distinguish personal requests from business requests. Personal requests, often call a “soft pull”, do not affect your scores at all. You can pull your own credit an unlimited number of times without it ever affecting your score.
Did you know that everyone is permitted to pull their own credit once per year from each of the “big three” credit agencies (Experian, Trans Union, and Equifax)? It’s true! You can pull your own credit an unlimited number of times without it ever affecting your credit score. If a local Louisville bank or a national lending company specializing in bad credit car loans, pulls your credit report, it is known a “hard pull.”
While repeated pulls by lending institutions can lower your score slightly, credit agencies such as Experian, Trans Union and Equifax understand that lenders must view credit in order to make decisions. As such, the overall effect on your credit score is typically very minor. Should you have specific questions about this, feel free to speak with one of our credit consultants at our dealership on Shelbyville Road in St. Matthews, Kentucky.
Contrary to what many people believe, vehicle financing is among the BEST ways to repair one’s credit! Why? Because car loans, even those for people with bad credit, have many of the attributes credit agencies use to judge a person’s credit worthiness.
One of the most important things a credit agency analyzes when judging credit scores is debt type. If you were to obtain auto financing, even with bad credit, the loan would be classified by credit reporting agencies as an “installment loan.”
Unlike credit cards, which are known as “revolving debts”, installment loans have a fixed term and rates of interest that do not change. Where credit card interest rates and terms can sometimes change, installment loans like car loans, even those for people with less than perfect credit – will eventually end after a fixed period of time.
How you pay an installment loan helps credit reporting companies understand your payment habits: Do you pay on time every month? If so, do you pay the full amount? Even Louisville, Kentucky-based companies who specialize in bad credit car loans, like Oxmoor Mazda, want to know the type of borrower with which they are dealing.
Another important factor to remember when thinking about applying for bad credit auto financing is loan size. Next to a home loan, auto financing is often the largest and most important debt in a person’s life. Due to the weight auto loans command, especially if you have bad credit, it is extremely important to use good judgement and exercise responsible behavior in order to achieve a healthier credit score.