If you’ve never financed a vehicle with the help of a subprime lender before, you may have some questions. Auto Credit Express has some answers! We receive questions daily about subprime car loans and we have some common solutions to help you navigate the subprime financing space.
1. Can I Get a Subprime Car Loan With Really Bad Credit?
What’s considered “really” bad credit is subjective, and the answer can change depending on the lender you’re working with. Typically, bad credit is considered a credit score below 660, and “really” bad credit may be considered a score below 500. However, what’s usually most important to a subprime lender is what created the poor credit score in the first place.
For example, if you have a bad credit score after being recently discharged from bankruptcy, that’s likely to be considered situational bad credit. Situational bad credit is defined as bad credit as the result of a life event, or events, that cause damage to your credit reports. Many subprime lenders understand this and can assist in these situations. However, if you have bad credit because you’ve missed too many payments on your loans in the past, that may be considered habitual bad credit, which can be harder to overcome.
An auto lender’s main concern is your ability to repay the loan. Your personal situation and what’s reported on your credit reports are unique to you, and subprime lenders are equipped to work with many different credit circumstances if you can prove you have the chops to pay the loan on time.
2. Do I Need a Down Payment?
Yes, you can expect a down payment requirement if you apply for a subprime car loan. Nearly every subprime lender has this requirement; it’s usually at least $1,000 or 10% of the vehicle’s selling price (sometimes whichever is less).
A down payment can be made with cash, trade-in equity, or both. The selling price of the car you want to finance can change your down payment requirement as well. If you want a lower down payment stipulation, you may need to consider a more affordable car.
3. Do I Need a Cosigner for a Subprime Car Loan?
Having a cosigner isn’t a blanket requirement to qualify for a subprime auto loan. In fact, subprime car loans are made for borrowers with credit challenges, so a cosigner may not be necessary at all. A cosigner’s main purpose is to “lend” you their good credit score, but subprime lenders aren’t as strict with credit score requirements as other traditional lenders.
Typically, if you can meet the other criteria of a subprime car loan alone, you may not need a cosigner to be considered for subprime financing.
4. Can I Buy a New or Used Car?
Subprime lenders are signed up with special finance dealerships, so new and used cars are generally both available options for subprime borrowers. Your income and current expenses dictate how large of a loan you can qualify for. In some cases, if you have the income to afford a new vehicle and qualify for a subprime auto loan, it can happen.
Usually, bad credit borrowers have an easier time getting approved for a used car loan because used vehicle selling prices tend to be lower. Many new vehicles require a higher loan amount, so if you have your heart set on a brand new set of wheels, we recommend having a large down payment to increase your chances of getting an approval.
5. How Much Income Do I Need to Qualify?
Subprime lenders vary in their specific income requirements, but generally, the keystone income requirement is around $1,500 to $2,500 in minimum monthly income from a single source. Subprime lenders typically prefer borrowers with W-2 income, but some are willing to approve borrowers with 1099 income as well.
Another thing associated with your income is your work history. Most subprime lenders require that you’ve been at your current job for around six months to a year. Auto lenders need proof of how much you’re bringing in each month and want to feel confident that the income will remain consistent throughout the loan term. The longer you’ve been at your current job or in the same field, the higher your chances of meeting work history and income requirements.
6. Can I Refinance a Subprime Car Loan?
Yes, it’s possible to refinance a subprime auto loan. Many bad credit borrowers want to refinance their car after a while once they’ve seen an improvement in their credit score since it can offer the chance to lower your interest rate and/or monthly payment.
Refinancing lenders have their own vehicle eligibility requirements for refinancing, such as mileage, age, and age of your loan. For more information on typical refinancing requirements, you can read about them here.
7. What Interest Rates Can I Expect to See?
This is a very frequently asked question we receive here at Auto Credit Express, but there's no easy answer for it. We’re not a lender, however, we can tell you that borrowers who use our services receive an average interest rate of around 13%, according to our dealer network.
The type of vehicle you’re financing, your credit score and reports, down payment amount, and loan size all go into what interest rate you can qualify for. There's no exact figure that covers everyone. However, if your credit score is poor, it may be possible to qualify for an interest rate of around 5% to 20% on an auto loan. A few ways to increase your chances of getting a lower interest rate on a subprime car loan include:
- Having a cosigner
- Having a large down payment or trade-in with equity
- Choosing a newer vehicle
8. How Do I Find Subprime Lenders?
Finding a subprime lender starts with finding a dealership that’s signed up with them. Dealers almost always have lending partners, but it’s not always clear which ones are signed up with subprime lenders.
This is something we want to help with at Auto Credit Express. We know how tough it can be to find lending resources when your credit score is less than perfect, which is why we created our nationwide network of special finance dealerships. We’ve been connecting borrowers to dealers in their local area for the last 20 years, and we want to help you, too.
To start the process of finding a dealer in your area, complete our auto loan request form. It’s completely free, carries no obligation, and we’ll get right to work.