It is possible to finance a car if your license is suspended. In most cases the process is no different than when applying for a loan with a valid driver’s license. Here are a few things to expect.
All lenders pull a credit report when you apply for a loan. Each pull lowers your credit score, so if you plan to shop your loan to several lenders, group the applications within a 21 day period and credit reporting agencies will not lower your score as much.
For a car loan, lenders will request a specialized credit report and credit score. That score has a different name depending on who supplies the credit score, but through FICO, the largest credit score provider, it is called the auto enhanced score. It will reflect your overall payment history, but will be weighted on your past usage of car loans. If you have repaid those loans responsibly, then your auto enhanced score may be 100 points higher than your basic score. On the other hand, if you have made late payments or had a repossession, it may be a few hundred points lower.
DTI and Down Payment
Your DTI or debt-to-income ratio must meet certain criteria. In general, it must be less than 35 percent of your gross income. That percentage can vary depending on your credit score. The higher your credit score is, the higher your DTI can be and vice-versa.
You may be asked to offer anywhere from zero to fifty percent of the total purchase price of a vehicle as a down payment depending on your credit score. Obviously, the better your score is, the smaller your down payment can be. Even if you have excellent credit it is in your best interest to offer at least ten percent, preferably twenty, as a down payment. This will reduce your monthly payments and save you on total interest paid over the life of the loan.
Full Coverage Insurance
All lenders require that the asset involved in a car loan be protected by full coverage insurance. This may be the fly in the ointment for people with a suspended license. Not all insurers are willing to offer policies with a suspended driver’s license. That may force you to pay a higher premium or, if you cannot secure a policy, your loan application will be denied.
Yes, it is possible to finance a car if your license is suspended, but you may be better off waiting until the suspension is over. That will give you time to build a larger down payment and allow you to avoid the worry about finding an insurance policy.