It’s no secret that it takes a lot to get a car loan if you have bad credit. Even though it can be difficult, an auto loan is one of the best tools for credit improvement. If you’re someone with damaged credit (having a credit score of approximately 620 or below), you’ll probably need a subprime auto loan.

Preparing for Your Auto Loan

In order to be prepared for an auto loan, it’s a good idea to plan a budget. This is a great way to begin reaching your financial goals, and it allows you to control and monitor your spending. A successful budget means being honest with yourself about your finances and sticking to it.

There are no rules to budgeting. You have to find the mix that works for you. It’s also a good way to know what you can afford when searching for a vehicle to meet your needs. If you're trying to build your credit, remember to also include money for savings and to reduce your debt.

woman paying her billsOne method that some people find helpful is the 50-20-30 rule, but the percentages can be changed to meet your goals. The 50-20-30 budget plan allocates your income as follows:

  • 50% for needs – These are the essentials you pay every month. Housing, utilities, groceries, and transportation all fall into this section.
  • 20% for savings – This portion of your budget includes money set aside for the future and for debt reduction.
  • 30% for wants – This money is for your non-essentials; things like entertainment, shopping, and hobbies.

Another key to being prepared to finance a car is to know your credit. Taking charge of your credit with credit monitoring also means you’ll know your credit situation when you visit a dealer.

Every 12 months, you have a right to receive a free credit report from each of the three major credit bureaus— TransUnion, Equifax and Experian. A good way to monitor your credit throughout the year is to request a report from one of the bureaus every four months from This way, you’ll be able to monitor your credit reports and make sure they're accurate. You can dispute any mistakes or suspicious activity you find to the bureau.

Getting Financed

Subprime auto lenders have a number of requirements for borrowers. Each lender is different, so minimum income needed can vary. Typically, you will have to provide proof of identification, residency, income, and any additional requirements for that lender. Along with these, you’ll need to provide proof of a working telephone in your name and a list of personal references.

Using Your Loan to Build Credit

Once you’ve gotten an auto loan, it’s time to make it work for you. This is another instance when your budget will come in handy. In order for your loan to help improve your credit, you’ll need to make all your payments in full and on time. Doing this over the course of your loan term can significantly raise your credit score. This is because your payment history makes up the largest portion of your credit score, accounting for 35 percent of it.

Be sure to make your payments and stick to your budget. Late or missed payments can reflect negatively on your credit or even result in a repossession, which could stay on your credit for seven years.

The Bottom Line

If you’re in need of a vehicle and want to repair your credit, an auto loan may be right for you. Unfortunately, not every dealer works with subprime lenders, which can make it tough to know where to turn if you have bad credit. But don’t let your credit issues get you turned around.

Auto Credit Express can start you down the path to successful auto financing. We work with a nationwide network of special finance dealers that have the lenders available to help people with damaged credit. Take the first step today by filling out our auto loan request form.