Getting approved for an auto loan if you have bad credit is easy if you know how. Follow these 3 steps.
Step One. Know what you can afford. The number one reason people fail to get approved is they pick a car that the bank doesn't feel they can afford. Bankers will take your gross monthly income (before taxes) and multiply it by 20%. This number is the maximum car payment the bank will allow. For example if you earn $1500 per month you need to find a car that you can finance for under $300 per month. Ask the car salesman for a rough idea of what the payment will be on the car your looking at. There are many variables that determine a cars monthly payment but you can use $4 per hundred. Divide the sales price ( less your downpayment) by 100 and multiply by $4. Find a car your can afford.
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Step two. The bank is looking for what they term "Stability". How long you have been employed at the same job and how long you have lived at the same address. Banks generally don't approve loans for someone who just started a job a month ago and recently moved. They are worried the job may not work out and you will be unemployed. They don't like to see a pattern of moving every year or less. They like 6 months or more at the same job and residence. The exception is job changes within the same line of work. Timing is important so waiting a few months to get you past the six month mark may prove worth it. You can also get a co-signer. Husband and wife, mother and daughter. A co-signer may provide the stability the bank needs.
Step three. Banks look at the amount of money being requested in relation to the value of the vehicle. Every vehicle has a loan amount which is roughly 80% of its retail value. Here is where the car dealers price and your down payment come in. Try and get the loan amount under the loan value. Then it become a safer loan for the bank to make. When they loan less than the vehicle is worth its allows them the chance to recover all their money at auction if they are forced to repossess the car.
Follow these three steps and you will get approved for bank financing to build your credit.
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