You don’t need perfect credit to get approved for an auto loan. But, if you’ve recently applied for a car loan and were denied, you may be thinking that your bad credit is in the way. The good news is that there are lenders out there willing to work with you, but finding them can be a challenge.
Getting a Car Loan with Bad Credit
One of the most common ways car buyers with bad credit get financed is through a subprime lender. These lenders specialize in working with borrowers with credit issues, but they can be hard to find. Subprime lenders are indirect lenders – which means you can’t sit down with one face to face and get a loan. Instead, you have to find a dealership that works with them.
But you can’t just walk into any dealership, because not all of them have a special finance department. At the same time, when you do find a special finance dealer to work with, the process of getting approved is a little different than a traditional loan.
There are three main things subprime lenders look at before deciding what you qualify for:
- Credit score and reports – Where does your FICO credit score currently stand and what does your credit history look like? Subprime lenders look at your credit score to determine which loan program and tier you qualify for, and look at your credit reports to see how you've handled credit in the past.
- Income – Subprime lenders have a minimum income requirement borrowers must meet. Typically, it’s $1,500 to $2,000 a month before taxes, but the amount varies by lender. You need to provide proof of income in the form of a recent computer-generated pay stub from your current employer.
- Debt to income ratio – How much available income you have is important to subprime lenders. They want to make sure that you’re not already using too much of your income for bills, so they calculate your debt to income (DTI) ratio. To find your DTI ratio, add up all of your monthly bills and divide that by your pre-tax monthly income. Ideally, you want your DTI ratio to be less than 50 percent (including a car payment and insurance) in order to qualify for an auto loan with a subprime lender.
Because it depends on a subprime lender's specific requirements, how much car you can afford and whether or not you get approved varies.
Visiting a Buy Here Pay Here Dealer
If you’ve already attempted to get financing through a subprime lender and weren't successful, your next best option is to find a buy here pay here dealership. BHPH dealers lend in house, meaning you can finance and purchase a car all in one place. These dealerships typically don't check your credit. Instead, they use your income to determine what you qualify for. As long as you have a regular income and can pay weekly or bi-weekly in person, most BHPH dealers are willing to work with you.
If you choose to finance through one of these dealerships, you need to be aware that they tend to only carry older used vehicles. Also, unless these dealers state otherwise, they won’t report loans or payments to the credit bureaus, so you won’t be able to improve your credit over time.
Get Connected Today
Finding a lender to work with can be a challenge when your credit is suffering. If you’ve already been turned down for a car loan and worry you won’t find financing, let us help out.
At Auto Credit Express, we can connect you with a local dealership that specializes in helping consumers in poor credit situations. The dealers we work with know how to handle car buyers dealing with various unique credit issues. Our service is free and doesn't put you under any obligation. Get started by filling out our secure auto loan request form today.