Bad Credit and Car Financing

For people looking for bad credit car financing, finding alternatives in order to get a loan becomes a necessity. Part of the car buying process involves securing loans as a way to finance an auto purchase. This process is straightforward for many borrowers, but problems do arise when a borrower has bad credit. Bad credit limits or eliminates traditional options for financing a car purchase, and the focus shifts to looking for funding alternatives that may be more sensitive to the needs of borrowers with bad credit.

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People have bad credit for a variety of reasons. Some of those reasons are within the person's control, while others, such as incurring a large medical expense during a time when uninsured, are beyond their control. The reasons for a person's credit status may create barriers for some lenders but opportunities for others.

One alternative to buying a new auto for a person with bad credit may be to consider a used one. Some dealers, who are looking to reduce their inventory of used cars in favor of newer models that have a higher profit margin, may be willing to work harder with a motivated buyer that has bad credit. This can be accomplished through working with lenders who work exclusively with at-risk borrowers.

Lenders who specialize or work with borrowers with bad credit are often referred to as sub-prime lenders. The word sub-prime has a particular stigma attached to it as it relates to loans made to individuals who may not be able to pay them back. This stigma may be unfair to many people who are hard-working and responsible individuals who may have experienced a temporary financial setback. The opportunity provided by a sub-prime lender could be the leg up needed to get a person back on track.

There are several lenders who work almost exclusively with borrowers that have bad, poor or no credit. These sub-prime borrowers have to meet criteria established by the lenders in order to qualify for second chance financing, including:

• They are up-to-date on their bills and debt obligations.
• They have not declared bankruptcy or have had a bankruptcy discharged.
• They are of legal age, which is 18 in most states.
• They are United States citizens.

It is at the discretion of the lender to waive any or all of these requirements as deemed necessary to meet a need to lend to certain communities and provide access to loans.

Sub-prime borrowers may prove to be good customers for some dealers. There are no guarantees that given another opportunity to establish a good credit rating that a person in financial straits will respond positively. The hope is, however, that those individuals who are truly deserving and demonstrate a minimum level of responsibility will benefit from efforts by certain lenders to extend financing choices to them.