Qualifying for an Auto Finance Solution

You might have heard that the credit crunch has left buyers with few auto finance solutions to choose from. The number of available loans began to dwindle in 2007, when the faltering economy caused a sharp spike in the number of delinquent borrowers. Panicked by the sudden shortage of payments, auto lenders tightened the screws on their loan prerequisites, effectively shutting out thousands of people with less-than-perfect credit scores. In fact, of those who applied for auto loans that year, just 66 percent were approved. The situation became far worse in 2008, when a meager 17 percent of car buyers who applied were granted loans.

New Hope for the Credit Impaired

Since allowing that number to drop any lower would have shut down countless car dealers and lenders all across the country, there was nowhere to go but up. And that's exactly what has happened. The beginning of 2009 saw the number of approved subprime applicants make a small jump to 20 percent, and it's been rising steadily ever since.

Play it Cool

Even if you were among the 83 percent who were turned down in 2008, you shouldn't jump at the first auto finance solution you're approved for. If you qualify for one, odds are you'll qualify for others. Besides, even in the unlikely event that no one else is willing to work with you, the first lender isn't going to retract the offer simply because you took too long to act. To ensure you're getting the best deal possible, you should take the time to closely review the loan agreement, compare it to others and consider how the monthly expense will fit into your budget. Letting your guard down or overlooking just one detail could leave you saddled with a financially-draining loan that will negatively affect your life for years to come.

Beware Good Deals

You might have seen ads in which dealerships tout zero percent financing. Believe it or not, these offers are actually true--but only for the 15 percent of auto buyers with nearly flawless credit scores. The other 85 percent are offered alternate finance solutions, many of which carry higher than average interest rates. Rather than feeling they've fallen victim to a bait-and-switch tactic, many customers are all too eager to accept the deal, considering themselves lucky to have been able to secure a loan at all. However, whether some of these people are lucky is open to interpretation. Some lenders tack on as much as 60 percent to interest rates for people with mediocre credit, and up to 400 percent for people with bad credit. So, while it may be exciting to be approved for a loan, it's important to understand the type of loan you've been approved for.