How Using Your Tax Refund Can Help You Get Approved For Auto Loans With Bad Credit

If you are applying for, having a substantial down payment will definitely help you get approved. Applying your tax refund to your purchase can really swing the pendulum your direction.

As more and more people are finding themselves with lower credit scores, their traditional lending sources they are used to using will not be able to help them. Once your credit score gets below a certain point most banks and credit unions will not approve you even if you have paid loans with them on time in the past. Most bank guidelines and credit union charters prohibit approving loans below a certain credit score usually around a 620 FICO. This helps them to maintain a profitable portfolio of loans. These lenders provide what are called prime loan rates. These rates are usually very competitive and low. Consequently this does not leave very much room to offset delinquencies.To protect themselves they will not approve any applicant below their minimum credit score guidelines.

You can however turn to sub prime lenders for auto loans if you have bad credit.Although these lenders rates will be higher they will look at your whole financial picture not just your credit score. One way to really increase your odds for approval is to have a decent size down payment. When you put down a substantial down payment you accomplish two things for the lender.

1) You put them in an equity position on this loan. Sub prime lenders pay very close attention to “loan to value” guidelines. Here is a rough example:If the vehicle you are looking at purchasing is $10000.00 and the loan value is $9000.00 the lender is more than likely only going to approve up to the loan value. If you are putting $4000.00 down then they only need to approve $6000.00, this is way back of loan value. You have almost completely eliminated any risk for them. Loan value represents roughly what the collateral, in this case the vehicle is worth if sold at auction. If for some reason you stopped making payments and they had to come repossess the vehicle the amount they would get at auction would more than pay off the outstanding balance owed by you. The end result is no financial loss to them.

2) You are demonstrating a commitment to this loan. If you part with a large sum of money for a down payment the bank knows that you are making a commitment to this loan. If you default and they repossess the vehicle you will lose out on all the down payment money you put down. Most people will not want to walk away from that kind of money so they continue to keep their loan current. Again helping the lender feel secure.

As you can see putting a nice chunk down can really make the lender feel secure, therefore making it easier for them to say yes. If your credit is bad and you need to get approved for an auto loan,down payment is the key to getting you there. Using your tax refund can be a good way to accomplish this. Many dealers are set up to apply for your refund using various tax services. They can file for the rapid refund while you wait. This allows them to get the refund directly sent to them and you can drive home the vehicle right away rather than waiting for your refund in the mail.

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