Car Loan Despite Bad Credit
April 11, 2019
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Consumers often default on a bad credit rating with a negative Schufa entry. In fact, such is a clear feature of a weak creditworthiness, but even without any negative entry, the creditworthiness of a loan applicant can be considered weak. This is especially true when the income is only just enough to repay the loan or the job is not permanently secured.
Bank credit for a new car with bad credit
Banks are lending a car loan, rather than a non-earmarked consumer loan, despite its poor credit rating. The reason for this decision-making practice is that the vehicle buyer uses the financed car itself as collateral in a car loan. For this purpose, it agrees with the lender on a security transfer of the appropriate vehicle, usually their affirmation by depositing the registration certificate Part II at the Bank.
In order to protect the lender as well as the vehicle buyer against a loss of the car due to an accident or as a result of a theft, the vehicle financing requires a comprehensive insurance to be taken out. Independent banking companies grant the car loan at low interest rates, regardless of the chosen vehicle. These are higher than the loan interest payable to a car bank, in return the vehicle purchaser enters the car dealership as a cash payer and can negotiate a high discount on the car price.
Contrary to the assumptions of many consumers, a single soft negative entry in the Schufa statement does not necessarily mean the automatic rejection of a credit inquiry, since several financial institutions carefully check every individual case, especially for well-secured car loans.
The borrowing with bad creditworthiness in the dealership
The Autobank is more than an independent commercial bank willing to give a car loan despite bad credit rating. If she agrees to a credit request submitted via the vehicle dealer, she allows the sale of the desired vehicle. Some models require special promotion because their sales figures do not meet the manufacturer’s expectations. If the prospective buyer chooses such a model, the manufacturer bank not only grants him a favorable interest rate, but at the same time agrees the car loan despite bad credit rating more easily than with the decision for another model.
If the weak credit rating is not based on a negative Schufa entry, but on a low earned income or an insecure job, the likelihood of lending can be increased by choosing a loan agreement with low monthly payments. In addition to loans with long terms, vehicle loans with down payment or final installment are equipped with low monthly installments.
If vehicle buyers can pay at least a third of the purchase price of existing assets, including the sales value of an existing used car, Autobanks often refrain from the further credit check, as they interpret the possession of this sum as sufficient evidence of the creditworthiness of their customers.