When applying for a loan at your local bank or financing company, it’s good to understand exactly what it is that lenders look for when approving auto loans. This is especially important for those who have bad credit. At Joe’s Auto Sales, we gladly work with individuals with not-so-stellar credit. In fact, it’s our specialty! Below is a list of four items that lenders consider when approving bad credit auto loans.
1. Credit Score
Your credit score is probably the most significant item that lenders look at when deciding whether or not to approve a vehicle loan. This number is calculated from a range of factors like payment history, amount of debt, and type of credit. It determines the amount of money you can borrow and the interest rate of the loan.
2. Income & Debt
While income is important when financing a bad credit auto loan, the amount of debt you owe is equally important. Your debt-to-income ratio compares the amount of debt you owe to your income and calculates the percentage of your income that is applied to debt each month. A high debt-to-income ratio can make lenders nervous as they may see your budget leaves little room for yet another monthly payment.
3. Vehicle’s Age
Credit history, income, and debt all play a part in being approved for a bad credit auto loan, but so does the vehicle’s age. An older vehicle is more of a liability than a newer one, which may result in a higher interest rate for the aforementioned car. A newer vehicle is much less of a risk and can be sold if you default on the loan and the car is repossessed by the bank.
4. Down Payment
For individuals with bad credit, a large down payment can make a big difference in whether or not you’re approved for an auto loan. A down payment automatically decreases the amount you need to finance, which poses less of a risk for the lender. The typical recommended amount for a down payment is 20% of the car’s purchase price, but if you can only come up with as little as 5%, that is certainly better than no down payment at all.
Serving East Indianapolis
Apply for an auto loan with Joe’s and take advantage of our customer-friendly payment and service program. Call our East Indianapolis location at (317) 405-8545 to learn more about our quick and easy financing as well as our vast used vehicle inventory.
Source: Swinarski, Claire. “How to Get a Car Loan with Bad Credit.” Web article. MoneyGeek. 28 Mar. 2022. Web. 15 Nov. 2022.