Getting a car loan with bad credit doesn't have to be as tough as it's cracked up to be. Sometimes, just being prepared can make all the difference. We're here to show you what lenders expect when you need an auto loan, and how to make the most of your for your first visit to a dealership.
Basics Car Loan Requirements
It stands to reason that there are always a few requirements to meet when you need to take on credit – especially if you're borrowing for something big, like a car. Their credit score is one of the first things that people think of when it comes to getting a car loan. And, while it certainly plays a large part in the decisions of some lenders, other lenders know that bad credit borrowers deserve a chance at a car loan just like everyone else.
These lenders are known as subprime lenders and they work with borrowers in all sorts of unique credit situations. Since they're not relying solely on your credit score to determine your ability to handle an auto loan, they use other factors to determine your auto loan eligibility.
Each lender typically has its own specific stipulations for lending, but there are some basic requirements that you're sure to find to need no matter where you're financed:
- Income
- Residence stability
- Down payment requirement
Income
This is a no-brainer. If you need to get a loan for a car, you're going to have to pay it back somehow. This means having an income of some form to prove to the lender that you can make your payments on time.
If you're working with a subprime lender for a bad credit car loan, you're going to need to prove how much you make, and show where that income comes from. However, if you have a decent credit score, your work history and income source may not be held to such high importance as someone with lower credit.
Bad credit lenders prefer borrowers with W-2 income of around $1,500 to $2,500 a month before taxes from a single source. Prove your income by bringing in your most recent 30 days' worth of check stubs to the dealership with you. If you earn a different kind of income – from a contract position or self-employment, for instance – you're typically expected to bring in two to three years' worth of tax returns.
For most bad credit car loans your income must be earned and taxable. If most of your income comes from non-taxable or unearned income, you may need to consider a co-borrower and apply for a joint auto loan.
Residency Stability
Lenders need to make sure that the vehicle they're financing isn't going to disappear, and so they typically require you to provide proof of residence stability. This also establishes that the car isn't going to be used as a commercial vehicle, or that you're not living in it as a residence itself.
To prove you have a stable residential situation, you need to bring in a recent utility bill or bank statement in your name for the address you listed on the loan application. However, this requirement doesn't automatically throw out people in unique living situations. If you're in a one-of-a-kind situation, be sure to ask the finance manager at the dealership if a lender can still work with you and what it takes to prove your stability.
Down Payment
Bad credit borrowers always need to make a down payment when they're getting a car loan. This is one of the smartest moves you can make as a borrower, no matter the state of your credit situation.
A down payment saves you money in the long run by cutting down on the initial amount of money you have to borrow. When you borrow less, fewer interest charges accrue. Interest is the cost of borrowing money. How much extra you have to pay in interest on a loan is determined by your interest rate, which is largely based on your credit score.
If you're a borrower with poor credit you're likely to be assigned an interest rate that's a bit higher than average. A higher interest rate means paying more interest charges unless you offset that cost by using a substantial down payment and opting for a less expensive vehicle with a shorter loan term.
A down payment doesn't just set you up to save money overall, since it could also help you to avoid negative equity or change the terms of your loan contract. Depending on how much money you're prepared to put down, you could even qualify for a better equipped, more expensive vehicle.
Preparation is Key!
When it comes time to look for your next auto loan, don't go into the process blind. Being prepared is one of the easiest ways you can get a deal that works for you! Not every auto loan situation is the same, so make sure you know where you stand before heading to the dealership.
This means doing your research online for vehicles that fit your needs, and knowing where your credit stands. You should also prepare your proof of income and residency ahead of time, along with additional items that lenders typically ask for such as a list of personal references and proof of a working telephone in your name.
It's also a good idea to build a budget ahead of time so that you know how much you have to work with. Don't let a lender or a dealer determine what the best deal is for you. If you're not comfortable with any of the terms and specifics of an auto loan contract, it's OK to walk away. After you sign a loan contract, there's no going back, and typically no recourse for buyer's remorse.
Ready to Find Your Next Car Loan?
If you're in the beginning stages of shopping for your next auto loan, we want to help! Auto Credit Express has been a go-to source for helping bad credit borrowers connect with local dealerships for over 20 years. Let us take the hassle out of finding your next car loan by matching you to a special finance dealer that is signed up with subprime lenders that help people with unique credit situations.
Our process is free, fast, and there's never an obligation. Get started right now by filling out our auto loan request form today.
