Even for people with bad credit car loans are an excellent way to finance a car purchase. If your credit reports aren’t as clean and spotless you want to be, your best option is to provide documentation that you’re not a big financial risk for lenders.
The documents will also help prove that you’re financially capable of handling high annual percentage rates and monthly payments.
Here are the five documents you need to have on hand when applying for auto financing at banks and lenders.
Most financial institutions will require you to present proof of identity upon loan application.
Federal law requires customer identification, so don’t forget to bring along two IDs when you visit banks, lenders, or the car dealership if you’re applying for in-house financing.
Lenders with more strict requirements may require you to provide a government-issued ID or other IDs with your picture, current address, and signature.
Stock certificates, titles to other vehicles, and government-issued cards like Medicare cards are also considered as valid proof of identity.
You will also have to present proof of income, like a pay stub. This document shows that you’re actively earning income and will continue to do so for the life of the loan and that you can handle annual percentage rates and on-time monthly payments.
A document showing proof of income will also prove that you can handle the higher interest rates that you’ll face when you try to buy a car with a poor credit rating.
Banks and lenders will typically require you to bring a pay stub that’s less than a month old and indicates your year-to-date income.
You should also be prepared to provide your employer’s contact information. Aside from having your credit checked, you can also expect lenders to get in touch with your employer to verify your employment status and wages.
According to financial experts, showing proof of additional sources of income and other assets may also help you get a bigger car loan or improve loan terms in your favor.
If you happen to be self-employed, there are also some additional requirements. You may need to present as many as two years’ worth of tax history in the form of tax returns and bank statements from as far back as three months.
Other documents that show steady income – like invoices – may also be required.
To provide approval on bad credit car loans, banks and other financial institutions require applicants to provide proof of residence.
Lenders use this document to verify the address on the car loan application. The easiest way to meet this requirement is to bring along a utility bill or any business correspondence that you receive where you currently live.
Statements for credit cards, insurance policies, and lease agreements also work great as documents that show proof of residence.
You’re one step closer to getting your car loan approved once you can prove that you live where you say. If you plan to drive away with the vehicle once your loan is approved, you’ll also have to provide your driver’s license.
You can’t head to the bank or lender without information on the vehicle you want to buy. This is why it’s important to take your time to do the necessary preparations and research before going to financial institutions to apply for auto financing.
Lenders may require you to present the dealer sheet or buyer’s order. This document indicates the vehicle identification number the vehicle’s year, make, and model, the purchase price, as well as other pertinent details that the lender will want to know about.
The lender needs information on the car you want to buy because the vehicle serves as the collateral for the car loan. If you can’t repay the loan you take out, the lender takes possession of the vehicle.
If you’re buying a used car, you’ll have to work with the seller to gather as much information as you can on the vehicle.
You should note the vehicle’s mileage, vehicle identification number, as well as documentation on liens on the vehicle, if any. All this information help lenders and banks assess the risk of approving your bad credit car loan.
Loans for trade-ins may have additional requirements as well, including title and registration papers for your vehicle, documents that prove ownership, maintenance logs, and documentation of mechanical work. These help lenders determine the worth of the vehicle.
Before your car loan is approved, you need to show proof of insurance. Insurers will usually want to know about the vehicle’s make and model, as well as the year it was made.
Questions you’ll have to answer also include the estimated number of miles you expect to drive for leisure and for work. Be prepared to provide details on your driving history, too, including tickets, accidents, and other legal issues.
All these factors affect your insurance rates. Keep in mind that insurance rates vary by state as well.
If you already own a car and have auto insurance, it’s a good idea to call your insurance provider before heading to the dealer or lender.
Your provider can give you an estimate for your new rates, so you can factor these rates in when you’re trying to figure out the best loan amount for your needs.
If you’ve never owned a car before, you’ll find that comparing the offers of various insurance companies will help you get the best rates.
While you don’t need to present physical copies of your credit reports, lenders will run a credit check and get a look at your credit history before your loan gets approved.
A FICO score of 500 or lower – which signifies a bad credit rating – will usually get you the higher interest rates or a lower loan amount.
The length of the life of the loan may also be affected. Some lenders may even have stricter document requirements if you’re a car buyer with poor credit.
The good news is that your credit history isn’t something that will stop you from getting the car you need.
Take the time to prepare important documents and make sure you submit these along with your loan application. As long as you have all the documents required and you do your research, you have a good chance of car loan approval.
If interest rates are too high for your budget, you can also get to work on improving your credit rating to have an easier chance of getting your loan approved.