A New Borrower’s Credit and Impact on Car Loans

Many new borrowers start their credit history off with a car loan. You may find that a traditional auto lender may ask you to have a cosigner, though. If you don’t have this luxury but you’re ready for a vehicle, there are lenders that work with new borrowers, and we can help you prepare.

Your Credit History and Auto Loans

When you're a new borrower, you're sometimes referred to as having a thin credit file because your credit history doesn’t have a lot of information in it. A traditional car lender may view a thin file as risky, since you haven’t yet proven you’re able to take on and repay a loan.

Your credit score is likely in the mid-to-low range if you’ve never borrowed credit, but your credit score doesn’t start out at zero. The FICO credit score is the most common credit scoring model used among auto lenders, and it ranges from 300 to 850. Anything lower than around 660 is generally called “subprime,” and is considered bad credit.

Many traditional car lenders won’t consider a borrower with a score in the subprime range. But there are lenders that have the resources to work with new credit borrowers: subprime lenders.

These lenders operate through a dealership’s special finance department, and specialize in working with borrowers in all types of credit situations, including new borrowers. In other words, they aren’t traditional lenders because they use more than your credit score to determine your ability to repay an auto loan.

Meeting a Subprime Lender’s Income Requirements

Subprime lenders typically require borrowers to have a minimum monthly income of around $1,500 to $2,000 before taxes form a single source. This means having one job that meets the minimum income requirement, and an auto lender also prefers that you’ve had that job for at least six months to a year. They also prefer that you’ve had a solid work history for at least three years.

You’re also going to need a down payment. Borrowers with less than stellar credit nearly always need a down payment to get into a car loan – and it’s a requirement if you’re working with a subprime auto lender. As a new borrower, lenders need to see that you’re invested in the vehicle, so you can generally expect to need at least $1,000 or 10% of the car’s selling price, occasionally whichever is the cheapest.

Additionally, down payments lower the total amount you would need to finance, which also lowers your monthly vehicle payment and lowers the amount you pay overall in interest charges. As a new borrower, you aren't likely to qualify for the best interest rates available, so a big down payment is a great way to mitigate paying a lot in interest charges.

Other Common Car Loan Requirements

Along with meeting the income requirements and a down payment minimum amount, you should also expect to bring other items that prove you’re stable and able to repay a car loan.

Items commonly requested by subprime lenders include:

• Working contract phone, proven with a recent bill (no prepaid phones)
• Proof of residency, proven with a recent utility bill in your name or bank statement
• Your valid driver’s license, with current address
• Five to eight personal references with complete contact information

Every lender varies in their requirements, and depending on your personal situation, you may be asked to bring more or less items – but it's best to be prepared and gather things now so you’re not left scrambling.

Finding a Special Finance Dealership

Now that you’re armed with the knowledge of subprime auto financing, and you know what to expect, the next step is finding a special finance dealership that has the resources to work with new borrowers.

It can be tricky to find one, but they’re rather commonplace now – and we want to help speed up the process! Here at Auto Credit Express, we’ve created a nationwide network of dealers all over the country that work with all types of borrowers, and we match borrowers to dealerships in their area at no cost. To get started, complete our free car loan request form today!