Used car loan with bad credit but great cosigner?
Question by Miss Amberlicious: Used car loan with bad credit but great cosigner?
I want to get a used car so I am researching loans and trying to calculate my monthly payment to figure out how much car I can afford. What kind of rates and terms should I expect if I have bad credit (just declared bankruptcy) but have a great cosigner (my grandmother)? I have $ 1000 to put down.
Oh and any suggestions about what kind of car are welcome too. I would like an Integra or something like a Civic.
Best answer:
Answer by Stupid Flanders
You just declared bankruptcy and someone is going to put their credit on the line for you?
I know I am not your financial counselor, but it doesn't take a genius to figure out you don't come out of bankruptcy by buying more things.
Your Grandma should buy the car and you should make a written contract with her to pay her back.
She will get a much better interest rate as the primary and this is probably the only way this is going to work, anyways.
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I seriously doubt anyone will give you a loan at any rate. I suggest you save the relationship you have with your grandmother and just buy a $ 1000 car until you can save more money to buy something else.
I haven’t done anything like that for a while, but about ten years ago they were charging about 24% interest. Now, the usury laws are gone and I don’t know how high the interest rate will go. Also, the dealer would charge you a higher price for the car, because (depending on the dealer’s contract with the bank) if there is a default they may take a hit on it as well as the bank.
The good news is that if Grandma’s credit is good enough it will get you a decent rate (maybe 12-15%). Also, on time car payments will really help to fix your credit. If you make all the payments on time, you can expect to have a good credit rating again in about two years. Good luck.
It is certainly doable. I can’t give you a rate because there are a lot of factors involved, but expect 15-20%. I have seen some customers get close to 10%, but not often.
$ 1000 is not a lot to put down. You should have around 30% of the car’s price as a down pymt. That will help with a good approval. Grandma’s good credit only goes so far for you.
Also, buy a newer car with lower miles. That is less risk to the bank, meaning a better approval for you. Older cars with a lot of miles will not get financed at all, or you’ll get a really high rate. Under 50K miles and less than 5 yrs old is best.
It sounds a little counter-intuitive, but I have heard that many people will receive many good offers for car loans after they file bankruptcy. This is because, since you just filed for bankruptcy protection (chapter 7 I presume), you cannot file again for upwards of 8 years. This means you cannot ‘easily’ default on the debt (not that bankruptcy is easy).
In addition, your financial profile has likely improved from the bankruptcy. That is, you are much more likely to pay a monthly car payment if you have eliminated other sources of debt.
If you filed for bankruptcy protection using a lawyer, consider contacting your attorney. Often, they will have a list of post-bankruptcy resources for their clients – this often includes such things as finance companies willing to work with post-filing bankruptcy debtors. You average dealer finance company may not be used to working with bankruptcy debtors, but there are many who will – and for pretty good rates too.
You figure out how much car you can afford by looking at your monthly budget and figuring out where the money is coming from to pay for the car. Not from looking at loans and interest rates. You purchase a car based on the total price of the vehicle, not on the monthly payment you end up with.
How much car you can afford is based on your income and your debt level. Your credit score and your financial worthiness determines your interest rate and monthly payment. The co-signor is there to guarantee that you pay the money back that you borrow, they don’t guarantee you a low interest loan.
Your success getting a loan is determined by the car you want and the value of the loan you ask for. If you reach too high you’ll get denied. If you stay conservative ($ 7k – $ 10K) you might increase your chances of success.