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Buying a Car? Start with Your Credit.

Before you visit the dealership or apply online, make sure your credit is ready to work for you — not against you.
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First things first, for most of us buying a vehicle will be one of the second biggest purchases we will make in our lives outside of buying a home.

The point of this preparation guide is to help you as much as possible before you go to the car dealership and before you fill out that online form to that car dealership. 

Here are a few things that you must have in order to qualify to purchase a vehicle whether it be a new vehicle or a used vehicle:

1. Depending on your state, you must have a drivers license or a state ID. (if you only have a state ID, you must find a car insurance company that will provide full coverage automotive insurance for the vehicle that you are looking to purchase in order for you to leave off the light in that car. Also another thing to notate if you only have a state ID, some of major banks, which typically give better APR rates to the buyer, want to do business with buyers with a drivers license versus a state ID, so in most cases, you will need a cosigner with a drivers license in order to put yourself in a better position for your credit resume).

2. Full coverage car insurance, any legitimate dealership requires car buyers to have full coverage car insurance on whatever vehicle they purchase because that is the requirement of the banks; similar to when you buy a home the banks want you to have insurance on the home that is the same for buying a vehicle so one thing to keep in mind, is to budget for car insurance. According to your state laws, if you have a drivers license and you do not have car insurance for a certain amount of time you accumulate of penalty like something like a fee until you get car insurance that is what they do in the state of Tennessee, so for example, if you have a drivers license and you have a car registered and your name that has not had car insurance recently, the policy lapse, etc. if it has been six months with you not having car insurance it negatively impacts your record and you will have to pay for not having that car insurance.

So when you apply to get car insurance, typically you will have to pay a lump sum of money upfront of course this is also based off of your driving record, I have seen prices range from $100-$700 upfront if you only have a state ID the car insurance company may want you to pay up to $1000 in order to get car insurance and of course that’s not $1000 a month they want you to go ahead and pay for the entire policy so that could be a six month policy. 

3. Work history, it is very important for you to have approvable income unless you are paying cash for the vehicle. Banks want you to prove your income and doing so you must have at least three months of you working on your job full-time getting 40+ hours. Banks look at your gross pay, which is your pay before taxes. Also, if you pay child support, if you have a mortgage, credit cards, furniture bill the banks, or another car on your credit, banks factor this into your debt to income ratio.

For example, if you have a mortgage of $500 and you make $4000 a month right now your wife or husband has a car that you cosign for and that note is 729. You have child support that you pay which is $500 a month, the car that you got approved for has a car note of 783. You have to take total monthly debt ($500+ $729+ $500+ $783 ($2,512÷ $4000monthly income x 100) which equals DTI of 62.8% which is high considering banks want your DTI to fall below 40% to 50%. So, a down payment or a cosigner would be the best route in order to get better better rates and an approval.

4. Also, provide a phone number where the bank can reach you, as they will verify that they can contact you and/or the cosigner. This is a requirement, and both you and the cosigner must answer the phone for the welcome call with the bank. If you fail to do this, the bank will drop the loan, and you will have a short, limited time to complete the welcome call.

5. Down payments be prepared to pay a down payment if you have challenged credit; you can get approved without putting money down and some cases with challenge credit, but that depends on your previous credit history and how responsibly you paid loans in the past, sometimes people get sick people lose a job and that’s what causes you to fall behind on bills The banks understand this they see this and they typically work with you however, if you have an intricate credit history of not making payments on time more than likely you will have to put money down, which is determined by the bank.

Offer a larger down payment to lower the loan amount (which betters your chances of having the car note amount you want) if you have a vehicle that you will be trading in, that vehicle will count as a down payment towards your loan, if you have the clean title, not a rebuilt title, for the vehicle or if the vehicle that you are trading in has positive equity in that vehicle. 

In order to trade and the vehicle that you own, you must have a clean title only have your title ready; if you cannot get your title one can be requested for you for an additional fee based on whatever your state charges; the finance manager at the dealership will be able to request that title replacement for you. The title must be in your name in order for you to sell the vehicle to the dealership, if the title is not in your name, you must have the title transferred over to your name in order for you to sell that vehicle or else the dealership cannot use your vehicle as a trade-in because that would be illegal.

  If the Car Was Donated:  

• The person donating it signs the title over to the organization.

• Some charities may ask for more paperwork.

 

If the Car Belonged to Someone Who Passed Away:

 

• If They Had a Will: The person in charge (executor) signs the title and takes it, plus the will and death certificate, to the county clerk.

• If There Was No Will: Family members fill out a form and turn it in with the death certificate.

• If You’re the Spouse: You can get the title in your name for free within a year. Go to the county clerk’s office to finish the process.

2. If you have a cosigner, the same thing that you need they need as well, every dealership every state is different. You are better off of having more than enough paperwork than two little paperwork and the best way to expedite the car buying process is to have all of your paperwork before you come to the dealership That usually is the longest part of the car buying process. 

3. Sometimes the bank wants you to have your social security card, scanned and submitted and to verify your identity so if you have challenged credit, bring your Social Security card just in case.

4. If you have a car loan already, go ahead and get your vehicles current pay off from the bank that is financing your vehicle. This can be accessed online and your customer portal or you can call your banks toll-free number. And you can request the payoff amount for 30 days out, some banks only do 10 days out while others do 15 days out also ask for your per diem on your vehicle, that is your daily interest rates if you are behind for example this would be five dollars can go up to $30 or more per day of interest.

Everything listed above is based on the state of Tennessee, depending on whatever state you are in the documents may change that are needed. This information is accurate for the purchase of a new or used vehicle in the state of Tennessee. If you have any questions, please reach out to me via email at Kyterria@thecreditrepairministry.com

Written by Kyterria Ivory
Creator of The Credit Repair Ministry. Former Car Sales Pro turned Credit Mentor, helping everyday people fix their credit and level up their life.