What to Expect When Applying for Loans with Bad Credit

You know the saying, “when it rains it pours”, right?  Why does it always seem more applicable in time of trouble than in times of greatness?  Maybe it’s because when we are financially strapped any little extra thing that gets piled on feels much heavier.  

Being in a situation of needing an auto loan for bad credit can feel like this.  How are you suppose to get an auto loan to improve your credit when it’s bad credit that is holding you back?  

You know you just need a little extra help, but sometimes it can feel like moving a mountain.  Having an idea of what to expect will help you along your journey.  

Expect To Keep Calm 

meditating suitFirst, and most importantly, you will want to relax. Dealing with finances is always a stressful situation and it helps no one, including yourself, to be so stressed out that you can’t make heads or tails of what to do.  Keeping a focused and clear head is going to be the best way to start this process.

“Keep calm and carry on”, some sound and timeless advice from our friends across the pond.  Do what must be done to get your head calm and clear.  Practice yoga or concentrate on breathing.  Sit in silence and meditate.  Surround yourself with positivity.  

While this may all sound a bit hokey to you, the next few steps are going to require mental strength, fortitude and clarity.  If you have a better way to achieve a clear head, do it and don’t underestimate its value to you during this process.  

To get the most from your situation you are going to need to act, respond and speak with a clear and conscious mind.  Mentally preparing yourself first will keep you level headed and confident that you will be able to fully sort out this situation.  If nothing else, it’ll keep you relaxed.  

Expect Honesty And a Lot of It

Be honest with banks, lenders, credit unions and dealerships because they are going to be honest with you.  They are not going to be interested in protecting your feelings.   

While it may not be the easiest thing in the world to hear about, hearing and accepting the truth will be your first step toward an honest financial future.  No financial institution is going to lend money to a person who is clearly not truthful or honest with other or themselves.  

Keep this in mind:  Financial institutions have seen and heard it all and well before you ever showed up.  Your credit score is not the worse they’ve seen.  Your situation, while unique to you, is not to them.  They will understand and luckily for us all, they are not in the position to be judgemental.  So again, relax.  They’re only interested in your financial past, and they want to see you can be honest about your future, as well.

Expect to be Realistic

Sometimes life gets very real without you even noticing when it started and then you end up not knowing how you got here. That doesn’t mean you get to take a back seat and watch.  When life gets real, you have to get real, too.

Does it mean you will have to settle for the worst car out there?  No.  Does it mean you will get your choice of any car and trim you want?  No, but it does mean you get a car and while choices may be a bit limited, you will have what you need to start working your way towards a better credit score and that’s the silver lining.  

Realistic means you choose a midsize sedan over the luxury SUV.  Realistic means you understand and accept that a fuel efficient, less expensive, less insurance means you are making a wiser decision which leads to a better credit score which is what you’re trying to do.  This is life getting real.  

Expect to Know Your Credit Score

To prove you are a reliable, responsible lendee, be prepared.  Look up your credit score before hand.  There are three main credit report agencies: Experian, Equifax and TransUnion.  

These agencies have online websites you’ll be able to use to review your credit score.  Should you see something that doesn’t appear correct, you have the ability to challenge inaccuracies.  Do so before you start applying for loans.  

This is a proactive measure taken on your part which will only further help your cause.  

Expect a Higher Interest Rate

couple thinkingThat does sound a bit scary, I will give you that, but it if we’re being real…. It would be silly and unrealistic to ask a lender to give you an auto loan in your situation with a perfectly low interest rate.  That’s just not going to happen.  

Interest Rates do fluctuate according to lender and even state.  Good news there is a ceiling that nationally lenders cannot go over and that law is there to protect you.  That means that you will not be charged 30% or more, but could you be charged 25%?  

Yes, though it is unlikely that will happen and here’s why:  there are other places you can go to for auto loans that won’t charge you that much.  In other words, competition keeps interest rates low so banks, credit unions and dealerships get to compete for your business.  Look at how important you are now!  

You should probably expect to pay between 17-20% interest.  If you know how much you are looking to ask for, do the math before hand and add it up for yourself so you are prepared for that number.  

Expect To Talk About Your Current Life

Lenders are going to want to know about your current life.  While they can look at your credit report and see your past financial life, they will want to see that you are actively changing patterns.  

You should be prepared to answer questions about your current employment, salary or wages, current bills and lifestyle spending.  This will help them get a better understanding of your current financial standing, what you would be able to accurately pay monthly and what your interest rate would be.  

Also, be aware that your current financial situation labels you ‘high risk’ for loans.  While I am not a fan of labels, it is something you do need to be honest about accepting.  

Once you accept this, now think about what you can do to change the lenders perception of this fact. Be proud that you are trying to put yourself back in good standing and don’t sell yourself short.  

Expect To Need a Co-Signer

Banks or lenders may want to see a co-signer on the loan.  This means that because of your credit score and/or history, they will want the added coverage of a co-signer.  A co-signer is the insurance lenders sometimes need that they will get their money because if you can’t make the payment, they will then call the co-signer for the payment.  

The co-signer is a person who has a better credit standing than you do and who stands to lose points on their credit if the payments are not made on time.  It is also usually someone who believes in you, so try your best to not let them down.  

Expect the Best

new carSometimes life really throws some curve balls at you and it is easy to fall behind.  Especially as of late, financial institutions are seeing more and more people in all kinds of financial stress.  

It is easy to get down about it, but do remember they are there to help you out.  Lenders are not judging you, even if you judging yourself, which you should stop doing immediately.  

Be Your Best Advocate.  Keep a positive outlook and remember it will get better.  

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