Bad credit car finance allows those with bad credit to own a car. Those who have bad credit from late car payments or car repo could have a second chance car finance arranged to fund their purchase. A spotty past credit history means that lenders will be looking at specific criteria in order to approve a car loan.
The lender will look for verifiable income, meaning that proof of income is required. Bank statements and past tax returns may be requested to verify the income. The interest rate for bad credit car financing is based on the type of car the loan will be used to purchase, the borrower’s personal credit history, and the timeline of the loan.
Lenders will look at the borrowers past credit history. Having a bad credit history means that the lenders may require some collateral for financing, however bad credit car financing can be obtained with our without collateral. Subprime borrowers, or those with bad credit, will generally have interest rates that are higher due to the lack of equity on the collateral or lack of collateral. Financing where collateral is provided is called a secured loan. An unsecured loan is when there is no collateral supplied.
There are two ways to receive bad credit car finance, direct funding or indirect funding. Direct funding is when a loan is received from a financial institution such as a bank or a non-traditional lender. Approval is based is for a specific amount and a voucher is given to purchase the car of choice. Indirect funding is when a loan is through a car dealer. When a car is decided on, the dealer works with a financial institution to finance the amount of the desired car.
Having bad credit, bankruptcies, or car repossession no longer means there are no second chance car finance options available. Knowing the different types of loans as well as having a specific auto purchase in mind can make the process more seamless and efficient. There are many different pathways to allow for bad credit car finance so being educated puts the borrower ahead of the game.