Consumer Car Buying Advice Blog

Bad credit lenders must look beyond a FICO score in order to qualify consumers for a bad credit auto loan

Why we’re here

At Auto Credit Express we’ve spent close to 20 years focusing on consumers with bad credit and helping these same applicants raise their credit scores and reestablish their car credit by financing a vehicle with a bad credit auto loan. Along the way, we try to provide our applicants with the information needed in order to make an educated decision on whether or not to apply for a bad credit loan, since a poor decision can trap them in a loan they can’t afford which might actually lower their credit score even further.

As with anything else, the key to a successful bad credit car loan is focusing on the basics. In this case, it means understanding how bad credit lenders look beyond a poor FICO score in determining the creditworthiness of applicants.

Scoring applicants

When an application for an auto loan with bad credit is received, most lenders have a formula called a “score card” that they use to rate your creditworthiness and risk. Rarely will subprime lenders rely on the credit bureau score alone when making their decision on whether to approve or decline an auto loan application, since the score, itself, makes it difficult to judge current stability or ability to repay a loan.

What follows are a few examples of items that may be part of a subprime auto lender’s score card:

Time in Bureau

Many lenders use the “In Bureau Date” as part of their score card. The longer an applicant has been in the bureau system, the better that person will score.

Previous High Credit

Bad credit lenders may look at your previous high credit in order to help them determine the loan amount that they will approve.

Installment vs. Revolving Credit

When it comes to bad credit auto loans, many lenders may actually disregard revolving credit (credit cards) while paying close attention to an applicant’s previous installment loan history.

Time at Current Employer

For bad credit lenders, the more stable an applicant’s job history is, the better off they are. This means that the longer a person has been with their current employer, the higher they will score.

Time at Current Residence

Again, stability, this time an applicant’s residence stability, is very important when it comes to scoring a bad credit car loan application. If the applicant moves around a lot, this pattern tends to scare lenders. Consumers that move a lot are considered to be “Skip Hazards”. In other words, if a lender has to repossess a vehicle, they want to know where they can find it. The longer an applicant has been at their current residence, the higher they will score.

Debt to Income Ratio

It’s not how much an applicant makes, it how much is left over once the bills are paid that lenders focus on. In most cases, bad credit lenders prefer that all an applicant’s debts, including the new car payment, not exceed 40% to 50% of their gross monthly income. The lower the DTI ratio, the higher the applicant will score.

Payment to Income Ratio

Most lenders prefer to approve loans with monthly payments that are below 15% to 20% of a consumer’s gross monthly income. The lower the PTI ratio, the higher the applicant will score

Loan to Value

For applicants with bad credit, the larger the down payment, the better the deal looks. More money down decreases the loan to value of the loan and decreases the lender’s risk. The lower the LTV of the loan, the higher the applicant will score.

The bottom line

As a bad credit auto loan applicant, knowing ahead of time how a lender will score your application can allow you to judge for yourself high a lender might view your application. It can also help you to choose the best type of vehicle to drive, taking into account your own personal situation, while you’re reestablishing your credit.

For nearly 20 years, Auto Credit Express has been helping people with credit problems get approved for new and used car loans. Our dealer affiliates work with a broad spectrum of bad credit auto loan lenders to get you approved. Since our inception, we have processed over 2,000,000 online bad credit auto loans and our dealers have closed over 1 billion dollars in auto loans.

For more information, please visit www.autocreditexpress.com to see what we can do for you.

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