If you're buying a car, there are usually a few credit situations that might seem suboptimal to lenders. Poor credit is one example, but other examples include short or non-existent credit histories. These situations are all relatively similar since they mean your auto lender is more likely to scrutinize your application and look for additional proof that you can afford your loan.
Fortunately, none of these circumstances will prevent you from buying a car, and many dealerships will happily work with you to get you approved for an outstanding loan. That said, there may be some stipulations that come with your financing application. Understanding these potential stipulations can help you effectively navigate the car buying process.
Why Do Lenders Place Stipulations on Borrowers?
Lenders are all looking for the same thing: borrowers that will reliably pay their loan on time. The repossession process can be lengthy and fraught, so car lenders want to work with you to ensure you can make your payments every month. As a result, you have the best shot of getting approved by purchasing a car that's affordable with monthly payments that are easily inside your budget.
In most cases, the stipulations or restrictions that lenders place on subprime loans ensure you don't face unexpected and unaffordable expenses. These restrictions help guarantee that your monthly vehicle ownership costs are consistent, ultimately allowing you to pay your loan on time and, in the process, rebuild your credit for the future.
What Kind of Stipulations Can You Expect?
Most stipulations for subprime borrowers focus on the age and the mileage of the car. Lenders typically only want to approve a loan for relatively new vehicles with relatively low mileage. These cars are less likely to suffer catastrophic failures (and may even have the balance of a manufacturer warranty), so you're less likely to spend large amounts of money on repairs.
In some cases, the amount of money you put down might affect these stipulations, and you may have a bit more flexibility with a larger downpayment. Increasing your downpayment can also mean getting approved for a higher total loan amount, which means you'll be able to select from a broader range of vehicles while still meeting lender requirements.
How Can You Work Around Lender Requirements?
Knowledge is power, and knowing about potential loan stipulations is the best way to work with them. Before deciding on a vehicle, consider talking with the dealership financing department to determine the type of loans available to you. You may also want to talk to local banks or credit unions to see what other options may be available.
While these restrictions might seem harsh at first glance, remember that affordable bad credit car financing is an excellent way to build your credit. By taking out a loan you can afford now, you can improve your situation and enjoy far more car-purchasing options for the future.