Not too many of us can live without having a vehicle so if you need a car, have some credit problems and don’t have enough cash saved to be used for a down payment, you have some work to do. When a lender makes a decision to lend you money, it all boils down to risk. That holds true for all loans, not just ones to purchase a car. So before you fill out that credit application, look into your situation the way a lender would and you will have a better understanding of why a lender requires certain things to be in place when they look at your needs for financing a car.
There are different guidelines with each lender, but here are a few that may help you. First is your character, which is evaluated by seeing whether your financial responsibilities are being met. This is tested with your paying habits as reflected on your credit report. This is why a lender pulls your credit first. If your credit is less than perfect, try and fix it before you apply. At times it may require a little work, but is well worth the effort. Having a relationship with the lender is a good idea also. If you have a checking account with this institution and have handled it responsibly, this will help you.
The second area is the capacity. Do you have enough income to pay for the payment comfortably? They will require proof of employment with a tax return and or paystubs. They may even call your employer to make sure your employment will continue. The third is the down payment and sharing the risk with you on the loan. If you are not putting any money into the purchase, then the lender may feel it will be easier for you to not pay.
Lastly is the collateral. If you are looking at buying a very expensive hot rod, are putting nothing down and have bad credit, it may reveal to the lender that you want them to carry all the risk. So shop responsibly and buy a car that is within your means. The lender will use a blue book to value your car, so if you can get a good deal, you may not need a down payment.
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