If your bad credit score is stopping you from getting an auto loan, it’s time to look into other options and your next possible step. There are things you can do to improve your odds of getting your next car loan.
Auto Loans and Your Credit Score
Traditional auto lenders, like banks, credit unions, or the captive lenders of car manufacturers, tend to have high credit score requirements. Generally, if your credit score is below around 660, it can be a struggle to find a lender willing to give you a chance at an auto loan. This means that even if you have enough income to pay for a vehicle, your bad credit can stand in your way.
However, you’re not out of options for a car loan, and there are things you can do to increase your approval odds:
- Improve your credit score
- Get a cosigner
- Look into bad credit auto lending options
To help you decide the best route to take next for your situation, we’re covering each step in detail. Car loans are an exact science, but these things can boost your chances of getting into one.
1. Improve Your Credit Score
There are a few things you can do to improve your credit score that don't take that much effort on your part. Credit building is a long-term game, so if you can give yourself a little time before you apply, check out these credit tips:
- Pay down your credit cards. If your credit cards are maxed out, or close to it, pay them down as much as possible. This is called lowering your credit utilization ratio. If you owe more than 30% of your credit limits on your credit cards, it really lowers your credit score. The lower you can get your credit card balances, the more your credit score thanks you.
- Pay all your bills on time. Payment history has the biggest impact on your credit score, and one missed or late payment can stay on your credit reports for up to seven years. Your payment history is also important to lenders, since one of their biggest concerns when you apply for an auto loan is whether or not you’re going to repay it. Pay your bills and all other accounts on time, and your credit score improves.
- Review your credit reports. Sometimes, mistakes can be on your credit reports and they can lower your credit score. Common mistakes include accounts that are already paid off, accounts that aren’t really yours due to identity theft or an error, or a payment that was reported incorrectly. The three major credit bureaus – TransUnion, Experian, Equifax – all have their own credit reports, and they’re all likely to have different information. Review each carefully, and dispute anything that doesn’t look correct.
One of the first steps in credit repair is knowing what’s on your credit reports. You can request them from www.annualcreditreport.com, for free, and get a copy of each report from each bureau once a week until April 2021.
Having little to no credit history can cause a lower credit score, too, since you don’t have much on your credit reports. However, the next steps can work for bad credit and no credit borrowers.
2. Get a Cosigner
Cosigners can help bad credit borrowers increase their approval odds for a car loan. For a cosigner to assist, they must have a good credit score. Cosigners “lend” you their good credit score, and promise to pay for the auto loan if you can’t, so they must have enough income in their budget to cover the car payments as well.
Most borrowers ask a family member to cosign for them, like a parent or guardian. However, a cosigner can be anyone as long as they’re not a spouse. A spouse would become a co-borrower instead, and they help by adding more income – they don’t typically improve your approval odds if you have credit issues.
If you find someone to act as a cosigner, they have obligations to the auto loan like you, but they don’t get any rights to the vehicle since their name is never on the title. While they don’t have ownership rights, how you handle the car loan impacts both of your credit scores. If you stay current on your payments, you both can walk away from the auto loan with improved credit.
3. Bad Credit Car Loan Options
Not everyone has the luxury to wait for their credit score to improve, or has the ability to ask someone to cosign on the car loan for them. However, there are auto lenders that can look past a poor credit score: subprime lenders.
Subprime lenders tailor their loans specifically to borrowers who have bad credit. Instead of relying on just your credit alone to make a loan decision, they take a look at your income, employment, residence, down payment, and more.
Finding a subprime lender means looking for a special finance dealership. Subprime lenders are third-party, so you never meet them, and you instead work with a special finance manager that acts as your middleman.
You submit all the required paperwork to the finance manager, who verifies it and then sends it off to one or more subprime lenders. If you get approved, you’re told what you qualify for and you and the dealer find a vehicle on their lot that fits your needs and budget.
Subprime car loans also have the potential to repair your credit, since they’re reported to the major credit bureaus. If you stay current on your payments and work on the other aspects of your credit score, you can walk away with a completed auto loan and better credit.
Take the Next Step Right Now
A bad credit score can leave you feeling discouraged after a car loan denial. But if you know what steps to take next, you can start to look for an auto loan with confidence. Knowing where to look for the right lenders that have the know-how for credit issues can also help improve your approval odds.
Start the search for your next car loan right here with us at Auto Credit Express. We’ve created a network of special finance dealerships, and we match bad credit borrowers to dealers who have the resources for them.
Fill out our free auto loan request form, and we’ll look for a dealership in your area, with no obligation. Stop letting bad credit stand in your way, and begin your car shopping journey right now!