Low Income Car Loans Help
One of the financial difficulties of being a low income earner is the ability to qualify for financing or to save up a sizable deposit in a short period of time. Just because you have a low income, does not mean that getting a car should be difficult or stressful. It comes down to knowing what your options are and how to compare them.
The key to being approved and more importantly getting the right loan, comes down to preparing your finances to establish what you can clearly afford. You need to know what you can truly pay for without creating financial issues to your budget. You also need to prove to the finance company that you can manage the payments without issue. When you apply, there will be a serviceability calculation (debt to income ratio) to determine your ability to afford the loan. It is primarily comprised of how much money you have coming in versus what you have going out. If after paying all your bills there is no money left over, qualifying for a loan may be difficult.
There are however, options for those who have monthly cash flow problems and are essentially living paycheck to paycheck with no savings.
Making the Decision
Any vehicle owner must consider the “total cost of ownership.” If you have not considered the cost of insurance, title, registration, fuel, financing and licensing then you may be forgetting a large portion of costs. Not to mention unexpected vehicle repairs. The total cost of ownership on a used domestic sedan can range between $5,000 to $9,000 per year depending largely on fuel, insurance and the cost of the vehicle. Ensure you have disposable monthly income to pay for the extra costs of car ownership, not just the financing.
*Overlooked Fact – If you have worked out that you can afford a $250 a month car payment, redo your math to include running costs as mentioned above.
As an example: if it costs $6000 a year to run your vehicle, $6000/12 = $500 so the true cost of care owner ship would be $750 a month and that does not include possible repair costs.
Low Income Dilemma
The challenge for many low income earners is their ability to create a strong credit profile. Paying your monthly bills does help but unsecure consumer credit is what really grows a person’s credit profile. The ability to use credit and store cards with frequency can create a strong credit score. It shows lenders that you can borrow and repay credit easily.
The dilemma is a bit of a chicken before the egg scenario. A low income earner may be responsible and have the ability to borrow and repay, but their income to expense ratio may be too risky for a lender to agree.
So many low income earners are challenged with having a strong credit and cash flow profile.
Fortunately there are lenders that understand this and have created approval criteria that is more flexible than many of the banks and other asset finance companies.
Low Income Car Loan Options
Below are some popular car loan options for those on a low income finding it hard to qualify for a car loan through general banks and credit unions.
*Quick Tip – Be careful of lenders who try to put you in expensive loans. Yes, low income earners are classified as a higher risk than others but it’s not the same as an ex-bankrupt person applying for credit. Compare offers with at least 3 companies to get a true gauge of what you should be getting.
Best interest options: Non-profit and charitable organizations provide genuine affordable car loans for low income earners. They truly have your best interest in mind. In some serious cases families or single parent families may even qualify for a free car. Below are a few popular organizations:
Ways to Work – is a Community Development Financial Institution with over 44 loan office throughout the country. Those that qualify can receive loans up to $8000 at an 8% interest rate.
Working Cars for Working Families – is a group of organizations that work together to provide donated used cars to needy families, provide low interest loans with special terms based on the individuals circumstances and a matched savings program for car purchase.
Free Charity Cars – as the name implies, this is a non-profit that provides low income families with free cars. This is a great service for those with minimal income support or out or work and collecting benefits.
Job Links Employment Transportation - provides a list of numerous state based low income car loan options. See what program may be available in your location.
Fair deal options: If you above options don’t provide the financing amount needed, try considering comparison type services and normal financial institutes.
Car loan brokers - check with car loan brokers in your area as they can review your situation and then provide you with the best loan options available through the different lenders they may work with. In addition, search for online car loan brokers as they may have national lending organizations on their panel of lenders to choose/compare from.
Banks- While your bank might not provide low income car loans, there are many banks and credit unions that do. A few quick phone calls can quickly identify and mainstream lenders in your location that provide affordable loans with great rates.
A co-signer may be a good option if you have a willing family member or friend who has a strong financial position. This may not be the case for many and many don’t like to do business with people they are close to. It is however an option for some.
Last resort options: Sometimes you have to just deal with the situation as it is at that moment, even if you have to spend more for the privilegeL. If you have to have a specific car for work or a certain size for your family, these benefits may outweigh the costs.
In these circumstance you may consider financing from the below type businesses. Make sure to complete understand the terms, costs and interest rates of the deal. See below for other considerations to help prevent you from buying a lemon or buying from a un-reputable dealer.
Car lot financing – most towns and cities have car lots that advertise low doc, subprime, bad credit and low income financing - some even go as far as saying guaranteed financing. These types of providers really push the limit on the loans they provide and could be putting you in a loan you really cannot afford. These loans also are generally more expensive that other lending options. Make sure you are fully aware of all costs and conditions of these loans.
Payday type car loans – similar to the above, many payday type lenders are now expanding their business to include vehicle financing. As goes with the negative press around payday loans, be careful of these loan providers.
How to protect yourself when buying a car
With any type of legal document, it is important to know what you are signing. It is equally important to know whom you are doing business with. Below are some quick and easy tips to follow to make sure you don’t fall victim to a scam or engage with a un-reputable dealer/lender.
- Always check for online business reviews
- Always check for online business complaints
- Always check that the business is licensed, check their details against your states governing body of businesses. Most state provide this service for free online.
- Don’t take the first deal offered, always compare with at least 3 providers
These quick and simple checks will let you know if you are getting the best deal and if it’s with a reputable business.
The above options and tip can help you get the vehicle you need. It can be difficult to purchase a car when on a low income but there are multiple options available. It you need assistance with the process of securing a low income car loan or dealing with a finance company, try speaking to a financial or credit counselor for help.