Consumer Car Buying Advice Blog

There are a number of areas that lenders look at when scoring a bad credit car loan. Here we will look at a few of those things that they consider when looking at a credit report.

Not just a credit score

At Auto Credit Express, for the past 17 years we have been helping customers reestablish their credit by matching up their credit applications with our national dealer network that specializes in bad credit car loans. And while we are very familiar with the lending process, most consumers aren’t, so we thought now might be a good time to bring a little more transparency to the process lenders go through once they receive an application from the dealer.

First of all, it’s important to realize that when it comes to getting an auto loan with bad credit, rarely will subprime lenders rely on the credit bureau score alone when making their decision whether to approve or decline an application. Most lenders have a “score card” (sometimes based on an automated software program) that they use to rate your credit worthiness and risk. The following are a few examples of items that may be a part of one of these score cards.

Time in the bureau

Many lenders use the “In Bureau Date” as part of their score card. The longer a person has been active in the credit bureau system (TransUnion, Experian, and Equifax), the better. For credit “ghosts” (those individuals too young for a credit history or those that have never used credit), the lack of any kind of credit history can be a problem.

Previous high credit

In many cases, finance companies may look at your previous credit high (maximum loan amounts you’ve been given in the past) to determine the loan amount that they will approve.

Comparing installment versus revolving credit

During the credit analysis for an auto loan, many lenders will disregard revolving credit (items such as credit cards) and pay closer attention to previous installment loans (for items such as cars, boats, and motorcycles).

Time at current employer

The longer an individual has been with their current employer, the better. Since most subprime lenders want to see a 3 year employment history, showing all 3 years with the same employer will raise the “stability factor.”

Time at current residence

Loan applicants that move frequently tend to scare most lenders. Consumers that change their primary address often are considered to be “Skip Hazards” – especially if these moves are further than a few miles from each other or from state to state. The reason for this is simple: if a lender has to repossess a vehicle they want to know where they can find it.

Debt to income ratio

As far as lenders are concerned, it’s not how much you make, but how much is left over (after you’ve paid your bills) that that they tend to focus on. In most cases, bad credit car loan lenders prefer that all your debts, including the new car payment, not exceed 40% to 50% of your gross monthly income (that is, your income before taxes).

Payment to income ratio

The payment to income ratio refers to the amount of your car payment as compared to your gross monthly income. In this instance, most subprime lenders prefer to approve loans with monthly payments that are below 15% to 20% of a consumer’s gross monthly income.

Loan to value

More commonly known as “LTV”, this comparison is especially important when it comes to subprime auto loans. If you have bad credit, the more money down you can come up with, the better chance you have of getting your loan approved. Larger down payments decrease the Loan to Value of the loan and also decrease the lender’s risk.

The Bottom Line

Not every subprime auto lender uses all the items described above in their score card, but these score cards exist to help these lenders evaluate the risks of a bad credit auto loan. Additionally, once a lender decides to approve a loan, the score generated by their score card is used to determinate the interest rate - the higher the perceived risk of the loan, the higher the rate will be.

For more information about subprime car loans, feel free to visit our web site at www.autocreditexpress.com. Once there, you’ll find calculators to help you determine your budget as well as a loan resource center that can help answer your questions. If you need additional assistance, our toll free number is listed at the bottom of every page and, during normal business hours, it will connect you with one of our knowledgeable customer service representatives.

Tags: auto loan, bad credit, bad credit car loan, car loan, credit bureau, credit report, credit score, equifax, experian, subprime, subprime auto loan, subprime lenders, transunion

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