Getting a Car After Home ForeclosureValley Auto Loans » Articles » Personal Finance » Getting a Car After Home Foreclosure Previous Next Last Updated On: November 28, 2016
Can You Buy a Car After Foreclosure?
- 1 Can You Buy a Car After Foreclosure?
- 2 How to Get an Affordable Loan With Bad Credit
Having a home foreclosed can destroy a person’s credit, making it exceedingly difficult for him or her to get the necessary loans to get a car. Cars are a critical part of many people’s lives because they depend on them to get to work and school. Without such transportation, or without public transportation, a person’s mobility could be limited to the point where he or she is unable to work. This is becoming a very familiar phenomena as the recession continues and as unemployment stagnates. Luckily, all hope is not lost for those who need auto financing. Although it is true that a poor credit score can result in higher insurance rates, this is not an insurmountable problem. Read on to learn about options for getting a car after a home has been foreclosed.
How to Get an Affordable Loan With Bad Credit
Cars are expensive, and it is very rare for someone to have enough money lying around to pay cash for one. The grand majority of people will need assistance when purchasing a car and will require financing. When speaking to a company about obtaining a loan to buy a car after suffering a house foreclosure, honesty is always the best policy. Be as upfront as possible, disclosing details regarding the foreclosure, as well as a poor credit score. When an auto financing company feels that a person can be trusted and is honest, they will be more likely to work hard to get that person the loan that he or she needs. We recommend getting pre approved for a bad credit car loan before heading out the door to go car shopping. When you get pre approved you know just exactly how much money you can spend for a car. Then it is as simple as giving them a check from the lender.
Once a loan has been determined, as well as all of its details including interest rates and monthly payments, it is best to decide if the loan is affordable. If it fits into a person’s financial situation, great. If it is too expensive, there are a few steps that can be taken to make it more financially feasible. You can use tools like an auto loan payment calculator to estimate your payments.
Put Down More Money Upfront
The first option that can be selected to make auto financing more economically viable is to put down a greater amount of money upfront. Although this is not possible for everyone with bad credit to put up a down payment, it does allow the amount of money that will need to be paid off over time to be decreased, which makes the monthly payments smaller. Putting down a larger down payment will also inspire more confidence in the person offering the loan and possibly cause him or her to lower the interest rates. Putting down a greater amount of money up front minimizes the risk to the lender.
Provide Collateral Against the Loan
The best form of collateral for an auto loan is another car or other item that is worth a similar amount of money that has already been completely paid off. A foreclosure shows that a person may have defaulted in the past on his or her loans and is not to be trusted. By being willing to put something of his or her own as an investment into the loan shows the lender that the person is committed to repaying the loan. This will be perceived as the person seeking the loan will be less likely to default.
Have a Friend or Family Member Co-sign the Loan
Another method of making the loan more affordable by causing the interest rates to drop is to have a family member or friend cosign the loan. The interest score of the person who is cosigning should be high enough to decrease the risk to the lender so that he or she is willing to lower the insurance rates. This will reduce the total amount of money that will need to be paid.
Find a Lender that Will Work With Low Credit Scores
It is critical that, when seeking an auto lease after a foreclosure, a person looks for a lender who specializes in helping those with poor credit. This will improve the overall chances of being able to be approved for the loan. Fortunately, banks have become increasingly lenient when it comes to those with poor credit scores. They have begun to rely heavily on a person’s debt-to-income ratio (DTI Ratio) when choosing to approve a loan or decline the financing request.
The primary factor to keep in mind if a person is seeking an auto loan and knows that the lender is evaluating the debt-to-income ratio. The first factor is that, if the individual who is seeking the loan is still living in the house that has been foreclosed, then they will have any mortgage payments taken into consideration with the debt-to-income ratio. If a person is not residing in that residence, then his or her rent payment will instead be used in the debt-to-income ratio.
The debt-to-income ratio is essentially the amount of money that a person has compared to the sum of money that he or she owes. If a lender decides based on this information, that there is a reasonable chance that the person will be able to take on another loan and remain financially stable, then the auto financing loan will be approved.
The last factor is whether or not the credit issues that a person currently suffers from are a one-time deal, rather than a regular habit. If they are a one time deal, then the lender will be more likely to approve a loan because there is a stronger history of being financially responsible, compared with the single occurrence of foreclosure. If there are many bills for years that were late or not paid at all, then the person is considered to be a greater risk because he or she does not have a strong history.
Although this is not an ideal situation, it is often a good idea for a person to lease a vehicle until his or her credit score recovers from the foreclosure. Leases tend to be easier to obtain than car loans because they are a smaller amount of money over a shorter period, thus minimizing the risk to the lender. Should that person pay the monthly payments on time, the lease will be able to provide a significant bump in his or her credit score. This will make it easier for him or her to obtain auto financing in the future.
It will also provide the person with a vehicle so that his or her mobility is not limited. The main disadvantage is that, at the end of the leasing period, the person who is leasing the car will not have anything to show for the money that has been spent. However, many consider it worth it simply to be able to get to work and school without many difficulties.
Consider Rent To Own Options
A person with a poor credit score as a result of a house foreclosure can have access to a car is by renting it to own. This is when the person who is attempting to get a loan essentially signs up for a leasing contract. Then they agree to pay a certain amount of money every month for a predetermined number of months.
At the end of that time, the person seeking the loan will agree to purchase the vehicle. A percentage of the money that they have paid to rent it will go towards the cost of the car.
This arrangement often does not require a person to have a very high credit score. It ensures that a person can get the vehicle as soon as possible and have access to that mobility for a price that is affordable. Assuming that the individual who is leasing the car will have gotten enough money together to purchase the vehicle at the end of the leasing period. The main disadvantage with renting to own a vehicle is that a person who excepts this sort of contract tends to pay more. Most loans of this type charge more in interest over a period. You will pay more than the vehicle is worth for the loan.
Auto lenders will understand that everyone hits one or two financial rough patches in his or her lives and that those rough patches are not indicative of a person who does not pay off his or her debts.
Valley Auto Loans has a network of different lenders dedicated to helping individuals with bad credit get auto loans. If a person has money for a down payment or collateral of high value, then a cosigner may not be necessary. If not, you will need a friend or family member with good credit willing to cosign, and then there is an excellent chance that you will be able to get the loan that you need. If this is not an option, renting to own or leasing a vehicle is a valid option that should be taken into consideration. Remember that having mobility is critical to getting one’s finances back on track.
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