You’re looking for $5,000 auto loans for people with bad credit, but the fact is lenders aren’t looking to lend a specific amount. They’re looking to lend as much as possible without taking excessive risk. So let’s look at how a lender would decide whether to give you an auto loan for $5,000.
First, let’s estimate the payment. Now, because we know you have a shoddy credit score, your interest rate is going to be between 11% and 20%. For quick math let’s call it 15%.
$5,000 financed at 15% for 36 months gives a payment of about $174 per month. The lender already knows your credit is bad, but they’ve offset their risk by charging you 15% interest (or more). The only question remaining is whether you can handle another $174 in monthly debt service. To make this decision they use a ratio of the sum of all your current debt payments compared to your monthly gross income. What ratio are they going to want to see? It’s hard to say because it varies so much by lender. Some lenders care a huge amount about your income; others don’t care as much because an auto loan is a secured loan – meaning they can repossess the car if you default (repossessing the car can actually be profitable for them because they get the car back, keep all the money you’ve already paid, then turn around and sell the car again).
But I’d say you want to keep your total payment to income ratio below 40%.
For example:
Your gross income is $4,000 per month (you’ll have to prove that with pay stubs and possibly a letter from your employer).
- Your mortgage payment on your townhouse is $950 per month.
- You have another car payment at $250 per month.
- You have student loans at $150 per month.
- The minimum payments on your credit card debt is $140 per month.
So before we add the $174 per month for your new car loan, you’re at $1,490 per month.
Adding your $174 for the new loan you’re at $1,664, which is 41.6% of your gross income.
This leaves slightly over the 40% ratio we were shooting for. Does that mean you won’t get the loan? Not necessarily. Like I said, some lenders don’t care a ton about your debt to income ratio. On the other hand, you have to ask yourself if YOU want the loan. You’ve already got credit card debt, student loans, and another car payment. Would it make more sense to hold off on this car? Could you ride your bike or a $500 scooter to get where you need to go? I know it’s not glamorous, but trust me when I tell you that getting out of debt is worth feeling a little nerdy on your scooter. Think it over.
Listen closely. It doesn’t exist. There’s no such thing as a no credit check auto loan, with our without a repossession on your record.
Of course, that doesn’t mean you can’t get financing. You’re operating under the assumption that because there’s a repo in your recent past a lender won’t touch you. That’s not the case, but that doesn’t mean they’re not going to check your credit before they give you a loan. Why is that? Because your credit goes beyond just your Fico score (which I’m sure is pretty awful, but don’t feel bad – that’s just about everybody these days). Prospective lenders are going to look at your credit history to get an idea of whether they should treat you as anything other than a really bad credit score.
They’re going to look at:
- how much credit you’ve had in the past (both number of credit lines as well as total available credit on things like credit cards, etc)
- how many late payments you’ve had on those credit lines (although typically they’ll only go back 24 months)
- what your current outstanding balances are (including judgments, active credit lines, home loan, etc)
Make no mistake, if someone gives you an auto loan (even relatively small $5000 auto loans) after you’ve had a repo, they’re going to stick you with some ridiculous interest rate. I’m talking upwards of 20%. But that doesn’t mean they won’t give it to you at all. They likely will give it to you. But before they do, they’re going to look very closely at your provable income and your current monthly payments on other loans.
After all, whenever you had your repo, it wasn’t because you were flush with cash and just decided to stop making payments, was it? Probably not. Whether it was unemployment or some other emergency cash issue in your life, you didn’t have the money to stay current on your car payment. So the big tow truck came in the night and hauled it off to auction.
Here’s what your new lender will need to see:
- most likely at least 30 days of pay stubs
- a letter from your employer (on company letterhead) saying that not only are you still working there, you will continue to be employed by the company for the foreseeable future
Once you’ve proven the income, the lender will add your new payment to existing loan balances, calculate the total payments as a percentage of your gross and net income, and make a decision about whether you can handle the payment. If he feels like you’re likely to make your payments on time, he’ll give you the loan and courteously charge you 23% interest on it. And if you’re dumb enough to default again, he’ll repo your car, keep all the money you’ve already paid him, and sell the car to somebody else who’s on the hunt for no credit check auto loans after their repo.
For a guy like me who has spent more than two decades in the loan business, it’s still hard to imagine a type of loan where absolutely anybody gets approved. But the fact is there are bad credit auto loans that absolutely anyone can qualify for. I suppose that’s not such a bad thing. If people can’t get reliable transportation, they have a very hard time keeping steady employment. I don’t want more people in the welfare offices just because they had a repo a couple years back and now they can’t get a loan to buy a car.
But if you have damaged credit and you’re looking for $5000 auto loans, you probably have a few questions, and I’m guessing two of the more commonly asked ones will have to do with repossessions and bankruptcy.
First, repossession. Yes, there are lenders who won’t mind a repossession, even if it happened in the last year. But there will be some conditions. The repossession can’t have been part of a bankruptcy, and there still technically needs to be a balance on the account (even if you’re not making payments anymore). If you’ve had a repo you’ll have to bring a bigger down payment to the table, and lenders aren’t going to want to finance an old clunker, so you’ll need to buy a more recent model car that still has a warranty in effect. Make sense, doesn’t it? If you flake again and they’re left with a car, they want one under warranty so they can fix it for free (if it needs repairs) and sell it at a higher price.
And what about bankruptcy? Yeah, you’ll still be able to get financed even if you have a bankruptcy on your record. But again, some conditions. One, the bankruptcy will have to be complete and discharged. They don’t want you applying for a loan while you’re in the middle of asking the courts to let you off the hook with the rest of your debt. Second, your bankruptcy trustee will have to give you a document called an Authorization to Incur Debt for you to include with your application. That pretty much explains itself doesn’t it? If you’re bankrupt and looking to borrow more money, the lender is going to want to know that you have permission from the folks who handled your bankruptcy.
This topic isn’t a glamorous one, I know. But you, and millions like you, are in the dog house with the credit agencies right now. You still need transpo to get yourself here and there, and you need an opportunity to borrow some money so you can make payments and rebuild your credit. No credit check auto loans with repo are a great tool to get the process going.