One of the ways that a bad credit car loan is different from a regular loan is the documentation required by the lender
Loan documentation
At AutoNet Financial, we are in the business of matching up customers with poor credit with local dealers that can help them reestablish their car credit and raise their credit scores with a bad credit car loan.
But if you have bad credit and plan on buying a car, there are a few documents you will probably need when you close your loan at the dealership. These documents are commonly referred to as lender stips (stipulations).
Banks and auto finance companies use stips to verify the information that you entered on your credit application. This data includes information such as income, phone number, and address (remember: if you plan on financing a vehicle with a bad credit loan, you will have to prove the accuracy of every item on the car loan application).
Common stips
The following is a list of common stips that are needed to finance a car with a subprime loan:
Pay stub
Most people are paid on a regular basis with a pay check and, at the end of the year, receive a W2 form from their employer that documents their wages and deductions. For these “W-2” employees, a pay stub is usually enough documentation to verify the income stated on the car loan application. If overtime wages (those wages earned above a standard 40 hour work week) make up a significant part of your income, the finance company may also request your W-2 form from the previous year to prove the additional income is received on a regular basis.
W-2 form
As we stated above, W-2 forms are requested to prove overtime income. This is especially important if you are buying a car during the first four months of the year. After that, the year-to-date income listed on your pay stub is normally sufficient to document overtime income. In addition, if you receive hand written pay stubs, lenders will often ask for a W-2 form as an additional verification of your income.
Tax returns
Fewer and fewer subprime lenders will consider this kind of income, but if you are self employed, these lenders will require that you furnish them with your federal income tax returns from the past two years. These tax returns have to be completed by professional tax service. This can make buying a car especially difficult if you haven’t been self employed for at least three years.
Bank statements
Although bank statements aren’t a usual stipulation, the lender may ask for them if you are paid with hand written pay stubs of if you’re self employed (again, you can see how difficult the whole “self employed” situation is when it comes to subprime lending).
Telephone and utility bills
Utility bills are used to verify your address and phone number. If none of the bills are in your name, the lender will probably request a copy of your telephone bill to verify the phone number at your address. Other bills, such as credit card and bank statements, can also be used to verify your address as long as the bill is dated within 30 days of the date you buy your car.
References
The lender will also request a list of references (be sure to include the name, address and phone number of each reference on the list) of 4 to 6 people that you know. The list can include friends, family, co-workers, and employers.
Landlord
If you don’t have a mortgage and you’re currently renting, the lender will usually require the phone number of your landlord. Make sure you’re current on your rent payment before applying for a car loan. Otherwise, the lender may decline the loan.
The Bottom Line
If you’re planning on buying your next car with a bad credit car loan, you can streamline the process by gathering together all of the above documents and having all of your stips ready before you visit the car dealer.
For more information about subprime car loans, go to www.autonetfinancial.com. Our website has calculators to help you determine your budget as well as a loan resource center that can help with your questions. If you need additional assistance, our toll free number is listed at the bottom of every page.
