April 12, 2016
How to Line Up References for your Used Car Purchase
Getting a car loan when you have bad credit requires you to take a few extra steps. One of these is providing references to your lender in order to get approved. But why do bad credit lenders ask you to provide references at all? And how can you be sure your references are what they need?
Understanding Used Car Loan References
There are three main reasons lenders ask for references when you apply for a loan:
Identity Verification – The first purpose of a reference is simply to make sure you are who you say you are. Loan fraud is more common than most people realize. Lenders often take steps to reduce their risk when lending out large sums. If you can provide a list of references who can all verify your identity, the lender is more likely to trust you.
Contact Information – References also provide a way for a lender to get in touch with you if you fail to make a payment or if they can’t reach you directly. By providing a list of people whom you’re close to, you give the lender options for reaching you. Again, this helps assure the lender you’re trustworthy.
Information Checks – Finally, references allow the lender to make sure the information you provide (such as your workplace and salary, vehicle history, or other information) is correct and current. This can affect several aspects of your loan and determine whether you are approved or not.
Essentially, references serve the same purpose as your credit score: they’re a quick way for a lender to determine if you’re a good loan investment or a bad one.
How to Choose References
So who makes a good reference? Here are a few people you can consider for references for a bad credit car loan:
- Family members who live outside of your home (such as parents, siblings, etc)
- Coworkers or work supervisors whom you are on good terms with
- Close friends whom you see regularly
The key to choosing a good reference for your bad credit car loan is to pick someone who can vouch for you as a reliable and trustworthy person and whom you see often. You shouldn’t choose people who might not say great things about you or whom you haven’t see in a long time.
What to Include on Your Reference List
A good rule of thumb is to provide at least seven references on your reference list. This might be more than the lender requires to approve your loan, but it’s never bad to provide more than what they need. If your lender won’t accept all of them, you can simply choose the “top” two or three from your list.
When putting your list together, make sure to list your references by their full, legal names – no nicknames or abbreviations. Also give their home address, home phone or cell phone, and an email address if you have one. The more contact information you can provide, the better your reference list will be.
Also, make sure you ask for permission before you include a reference on your reference list. The last thing you want is to have your references be surprised by a call from your lender. They might provide inaccurate or unflattering information as a result.
Are References the Same as Co-Signers?
Many people get references and co-signers confused when applying for a loan. References are not the same as co-signers: A reference is just someone who can verify they know you and provide some information. A co-signer, on the other hand, is someone who is partially liable for your loan. Being a reference doesn’t carry any risk. Your references can’t be required to pay for your loan or anything else.
Giving References to Your Lender
When you apply for a bad credit car loan or try to buy a used car, you should take your reference list with you to the dealership so you can speed the approval process along. Having your list ready also demonstrates responsibility and competence, making you a better candidate for a loan.
Along with your list of references, you should also bring along other documents to support your loan application. Your lender may require some or all of the following when you apply for a bad credit car loan:
- A copy of your driver’s license and social security card
- Copies of phone or utility bills that clearly show your name and current address
- Pay stubs that show your income
- Proof of car insurance
Bringing all of this information with you when you visit the dealership will help speed up the approval process and make it much simpler to buy your used car quickly, even when you have bad credit.
Want to learn more about buying a quality used car even with bad or no credit? See us today at The KEY in Oklahoma City. We’re OKC’s top special financing car dealer, with thousands of satisfied customers from all walks of life. Call us today at 405-526-7000 to learn more and find your own used car!