Key To A Successful Bad Credit Car Loan
The Key To A Successful Bad Credit Car Loan
Are you submitting applications for a car loan and you keep getting declined? Is no one is telling you exactly why, and what you have to do or change so that you can get a car loan with bad credit?
Most people wonder why they can’t get a car loan when they have had bad credit in the past, when all they are after is a second chance to get a car loan, and prove themselves once again that they can in fact pay of a car loan without any problems so they can restore their credit.
First of all, let’s look at what all the bad credit finance companies look at when assessing an application for a car loan for a person who has had bad credit in the past, and what documents they require from you that are compulsory when you apply, and why they require them.
1. Compulsory documents you are required to supply:
- 2 Recent pay slips no more than 30 days old from the date you apply.
- A transaction listing from all bank accounts held in your name for the last 90 days backwards from the day you apply for the car loan.
- A loan statement for the last 6 months backwards from the day you apply for the car loan for any current loans you may currently have.
- If you are paying off any defaults or judgments you may have on your credit file, they will require a statement for this as well to show your repayments history.
- If you are renting then they will require a rental statement for the last 6 months.
- If you have a mortgage then they will need a mortgage statement for the last 6 months.
Now let’s look at why they need these type of documents, and what they look for when assessing your application for a car loan.
1. Pay Slips
- Pay slips are required for a couple of reasons, one is to view the net amount you currently earn, the other is to look at the year to date income to get an overall monthly average, and establish your actual income to calculate if you do have enough after your total expenses are deducted to afford the repayments for the car loan amount you are applying for.
2. Bank Statements for the last 90 days
- Bank statements play a big role in the decision making of a bad credit car loan application as to whether you get approved or declined. The things that a finance company looks at when viewing your bank statements for this period of time is;
They confirm that you income does go into your bank account for direct debit reason, so they know that when they take payments out for a new car loan the money will be there, keep in mind that the only payment method these lenders use is direct debit.
They look to see that all your current liabilities have been declared, and allowed for to make sure you can clearly afford to take out a car loan and make the repayments.
More importantly, they look to see if you are bouncing or honouring payments on any current liabilities that you are paying off, if you are bouncing payments on any current liabilities you are paying off, then this would show them that you are currently struggling with your current commitments and they will decline your loan, if you are not bouncing payments with your current liabilities then you are on the right track to get approved for a bad credit car loan
The other more important item they look at when viewing your bank statements, is if you are constantly overdrawing your bank account in the last 3 months, if your bank account is constantly overdrawn, then to them, this is a clear indicator that you are having trouble to stay on top of your current commitments/liabilities and will also be a reason for them to decline your application for a bad credit car loan. They will except at times with a good reason one or two overdraws but not several, so as you can see if you don’t overdraw your bank account, then you are on the right track to get bad credit car loan approval
3. Current Loan statements
- These are required to show how you have been paying off any current loans you have, which gives them an indication on your creditability to pay of a debt, and to make sure you’re not struggling to pay off any current loans you have. They only need these statements for the last 6 months, as this will show them that you have got your act together and your back on your feet and ready to handle another loan.
4. Statements for defaults or judgment you’re paying off.
- Providing statements on any defaults or judgments you are paying off will display to them a bit about you character, and that you have owned up to your bad credit, you are doing something about them, and showing you can stick to the payment arrangement you have made, in all, it shows that you are of good character and worth the risk to give you second chance with another loan.
5. Rental statement
- The reason they want a rental statement if you are renting is to see that you are paying your rent on time, and that it is not currently in areas, if you are not paying your rent on time or you are currently in areas with your rent, then your loan will be declined, because this shows that you are currently struggling financially, and giving you a car loan is not a good lending risk, if your rent is on time for the last 6 months, and you are not in areas, then you are also on the right track to a bad credit car loan approval.
6. Mortgage statement
- The reason they want to see your mortgage statement for the last 6 months is also to see that you are paying off your mortgage on time, and you are not currently in areas with your mortgage, of course if you are, then this is another clear sign that you are currently struggling financially, and getting a car loan is not a good lending risk, and you will get declined, however if your mortgage is on time for the last 6 months, and you are not in currently in areas, then you are on the right track to get a bad credit car loan approval.
Let’s now talk about another important thing that will help with your application when applying for a bad credit car loan, here we will talk about employment, different types of employment, and what difference it makes when you are considering to apply for a bad credit car loan.
1. Full time employment
- A lender considers the term full time employment, where you are employed on a full time basis, and have all full time employment entitlements, such as sick pay and holiday pay. Here you need to be employed for a period of 3 months of more, and not within your probation period, the only time they will consider an application where you have been employed full time with your current employer under 3 months, such as a month, is when you have moved from another employer that you were employed with for a period longer than 12 months, with no gap of employment between jobs, and you have stayed in the same industry.
2. Permanent part time employment
- A lender considers the term permanent time employment, where you are employed on a part time basis, and have all full time employment entitlements, such as sick pay and holiday pay. Here you will also need to be employed for a period of 3 months or more, and not within your probation period, the only time they will consider an application where you have been employed part time with your current employer under 3 months, such as a month, is when you have moved from another employer that you were employed with for a period longer than 12 months with no gap of employment between jobs, and you have stayed in the same industry.
3. Casual employment
- A lender considers the term casual employment, where you are employed on a casual basis but you work more than 25 hours per week, with casual employment you are not entitled to sick pay and holiday pay. Here you will also need to be employed for a period of 3 months of more, and not within your probation period, it is always better if you are employed for a period of 6 months with your current employer when you are employed as casual, this increases your chances to get an approval, and shows better employment stability.
4. Agency employment
- A lender considers the term agency employment, where you are employed on a casual basis through an agency, but you work more than 25 hours per week, with agency employment you are not entitled to sick pay and holiday pay. Here you will need to be employed for a period of 6 months or more and with the one agency, unfortunately there are no exceptions with agency employment, and it has to be a minimum of 6 months of consistent employment with the one agency as well.
So as you can see there is some flexibility with employment, and employment stability plays a big role when applying for a bad credit car loan.
Now we will talk about bad credit, and what it means to a lender when applying for a bad credit car loan. Finance companies that look at giving people a second chance car loan, look at the bad credit history as something that was in the past, which simply means that any defaults or credit problems you have had was in the past, such as 6 months or more in the past, they look at the reason why it happened, and what has changed since then. It is important to have a good reason for whatever bad credit you have had, and it is just as important that you can show that it was in the past, and you are now financially sound and back on your feet, capable to take out a loan, and make all the payments on time.
If you are still having credit problems, or you are defaulting on credit or bills etc. in the last 6 months, they won’t give you a loan if you are clearly struggling financial now, it’s just not conscionable lending on their behalf to put you in further debt, when you are clearly struggling to meet your current commitments, makes good sense don’t you think?
One last very important issue that lenders look at quite harshly when applying for a bad credit car loan, is pay day loans, large lenders are not big fans of people who have these type of loans when applying for a bad credit car loan, the reason being, is because they see that people who take out these type of loans generally need the money to catch up on bills or to pay for day to day living expenses.
This would be viewed that you can’t seem to meet your current commitments or living expense based on your current income, and there for could present a problem with you being able to take out a bad credit car loan, and making the repayments, however there are exceptions made here, such as why you have taken a pay day loan, and what it was used for, however they will not make any exceptions to anyone that has more than 2 of these type of loans, if you have more than 2 pay day loans at the time you apply for a bad credit car loan, or if you have had more than 2 pay day loans in the last 3 months, regardless if they have been paid out or not, your loan will be declined, there is no exception at all made here.
Now let’s summarise the key ingredients to a successful bad credit loan
1. You can supply 2 recent pay slips.
2. You can supply 3 months’ worth of bank statements that don’t show any overdraws.
3. Your bank statements don’t show that you are bouncing payments with any current commitments you have.
4. Your bank statements Cleary show that your pay with your current employment is going in your bank account regularly.
5. Your rent/mortgage/current loans are all on time and not in areas.
6. Any defaults that you have on payment arrangement are paid on time.
7. You meet the employment conditions set our earlier in this blog.
8. You don’t have more than 2 pay day loans on the go at the time you apply or within the 3 months prior to applying.
9. Any bad credit you have had is more than 6 months old and you can show that you are financially stable and ready to take on a new loan.
Need to find out more or you want some advice with your personal circumstances, please contact one of our bad credit loan experts on (National) 1300 982 279 (Local) 03 9368 3298
Or apply for a Free Credit Assessment now if you are ready.