Will I be able to get approved for a car loan?
This question typically comes up if the potential car buyer 1) has never had an auto loan before and doesn’t know how the process works, or 2) has credit or income issues that might prevent them from being approved.
For those who are new to the car loan process, let’s briefly review how it works.
First, in order to get a car loan, you must be at least 18 years old (to legally sign contracts), have good credit, and have a good steady income.
Many young people, such as college students, who have never had a loan before may have no credit history and have little or no income. For them, if they can’t pay cash, getting someone to be a co-signer on the loan is the only remaining option.
A co-signer is someone who has good credit and a good income who is able and willing to take over your car payments if you are unable to make them.
Unless the co-signer is also on the car’s title, which is not common, the co-signer is not a co-owner, even if they might end up paying for the car.
In cases where the applicant does not have a good full-time job sufficient to pay for a new loan and all their other expenses, even a co-signer will not help them qualify for a loan.
Loans are available from banks and credit unions, as well as through car dealers who work with outside banks and finance companies.
If your bad credit is an issue, you may not be able to be approved by a bank or credit union, but still might be approved at a dealer who works with a sub-prime lender.
Such lenders charge higher interest rates and may require a higher down payment than a conventional lending institution. For more details, see out article. Bad Credit Car Loans.
If you have no credit or have very poor credit, your only remaining option, assuming you can’t pay cash, might be a buy-here-pay-here (BHPH) car dealer.
These dealers don’t use banks or outside finance companies but finance their own loans to customers.
They require that customer have sufficient income to purchase a car, but don’t check credit.
However … a BHPH dealer’s cars are usually older, high mileage cars in less-than-good condition.
They also charge the highest loan interest rates allowed by state law.
If you must buy from this kind of dealer, just be aware of what you’re getting yourself in to.