Securing a bad credit car loan can be more complicated than it is for those with good credit, but it’s not impossible. That said, though, it’s worth knowing what you need to have to get a car loan on bad credit, or if you have no credit history.
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Car Loans, Credit Scores, And Income
As we all know, credit is all about risk. Lenders are willing to hand over money to creditors because they believe that creditor is likely to pay the money back, and will be able to make the interest payments that allow the lender to be profitable. As a result, lenders work with credit bureaus to develop a credit score, a three-digit number that allows them, at a glance, to get a sense of how much of a risk you happen to be. Generally you’re scored on a number of factors, including prompt payment, how much credit is available to you, and how much debt you’re currently in, although each bureau looks at different factors and gives each factor a different weight.
Whether or not that score is entirely fair is a matter of debate, but like it or not, it’s generally held as the gold standard for interpreting risk. That said, it isn’t perfect, and any smart lender knows that. And that means you can demonstrate your creditworthiness in other ways … or that lenders will want more proof that you’re a good risk.
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Your Tax Returns And Creditworthiness
As a result, it’s not uncommon, especially with bad credit card loans, for a lender to request you provide them with a copy of your tax returns. Usually they only request returns for the last year, but they may possibly ask the last few years, depending on the circumstances of the loan and your creditworthiness.
But why? Generally, it’s to verify your income and that you can afford the car payment. This is especially common if you work in an industry that pays you as a contractor, through 1099 forms, instead of as a salaried employee, or if you’re still cleaning up your credit history after a difficult time a few years in the past.
Generally your tax returns offer a complete overview of your financial history for the past year. They tell those reading your overall income for the past year, your gains and losses, your investments, and what you’re claiming as exemptions. In short, they offer a much clearer perspective on your finances than your credit score can offer, which is useful in evaluating you as a risk.
Should You Hand Over Your Tax Returns?
There are some reasonable objections many have to offering up their tax returns. Some people feel it’s an invasion of privacy, and others are concerned about inappropriate access to their information and potential problems with hackers or other digital thieves in the future. And truthfully, it makes sense to be worried about your personal information.
Still, if you trust the lender, you should provide them with the information they need. It might make the difference between securing financing and taking the bus.