Having bad credit can really stifle your ability to get new credit – including your next car loan. Thankfully, there are financing options for those struggling to get approved. So, if you have issues with your credit, we’ll cover the options to help you make the next step.
Car Financing With Bad Credit
A bad credit score can mean rejection from many traditional lenders, regardless of your ability to pay for the car loan. Many lenders use only your credit score to gauge your ability to repay a loan, and unless you meet their standards, you’re likely to be turned down.
However, there are lenders that work with bad credit borrowers who have the ability, stability, and willingness to repay an auto loan – and these lenders use more than just your credit score to consider you for approval.
If you’ve been denied financing by your credit union, bank, or a captive lender, it may be time to look into buy here pay here (BHPH) dealerships. Another option is financing a vehicle with a dealer that has a special finance department.
Buy Here Pay Here Dealerships
BHPH dealerships offer in-house financing, which means that the dealer you work with is also the lender. The biggest plus in using this type of lender is that these dealerships don’t typically check your credit during the approval process.
Instead, they require proof that you can repay the loan with check subs and a down payment. They only offer used cars, and their interest rates are generally higher than your average auto loan. But if your credit score is hindering your ability to get approved for a car loan, it could be a good trade-off if you really need a vehicle.
While these dealers don’t usually check your credit for loan approval, they may not report the loan to the credit bureaus, either. This means that if you make on-time payments and handle the loan responsibly, your credit score won’t increase as a result. However, they do report missed/late payments and defaults – which can lower your credit score.
In fact, if you want an auto loan that can help improve your credit score, a subprime car loan may be just what you need.
Subprime Auto Loans and Bad Credit
Subprime lenders work through a dealership’s special finance department. If you choose this route, the dealer works with one or more bad credit lenders, which gives you a better chance at an approval.
Before many of these dealerships submit your information to a subprime lender for financing, you’re required to supply documents that support the information on your credit application. These documents usually include:
- Proof of income – Recent and computer-generated check stubs, generally showing you have a minimum monthly income of $1,500 to $2,000 (gross-pay), although this can vary by lender.
- Proof of a working phone – Proven with a recent contract phone bill of a landline or cell phone in your name. Prepaid phones don’t make the cut.
- Proof of residence – Proven with a recent utility bill or bank statement in your name with your current address.
- Driver’s license – Must be valid (not expired, suspended, or revoked) and list your current address.
- Down payment – This isn’t needed to submit your application, but most subprime lenders require a down payment of at least $1,000 or 10% of the vehicle's selling price (sometimes whichever is less).
After submitting these items, the lender may also require you to provide a list of five to eight personal references with their complete contact information. To help with your planning process, ask some family members, friends, or coworkers ahead of time for their permission to be listed as a reference. Keep in mind that your references can’t share your home address.
If you meet all the lender’s requirements, the dealer submits your application to one or more lenders. If a lender approves your application, the dealership receives a payment call which tells them the maximum monthly payment you’re allotted.
From there, you choose a car that fits within that monthly payment from the dealer’s inventory. You may not get your dream car, but, depending on your income, you may be able to afford a certified pre-owned (CPO) vehicle. These are usually just coming off-lease and are typically only a few years old, with low mileage.
At the same time, you should have some idea of your basic vehicle needs to help speed up the car buying process. There are a few affordable new vehicles that bad credit borrowers may be approved for, but certainly not all.
After you’ve chosen a car, signed the loan documents, and taken delivery, your subprime lender starts reporting your auto loan payments to the credit bureaus. This means if you make your payments on time, your credit score should rise, since a good payment history and successfully completed car loan can really help your future credit opportunities.
Finding a Dealership With Bad Credit Lenders
After a few auto loan rejections, it can be discouraging to look for a lender willing to work with you – but you have options. You just have to know where to start!
At Auto Credit Express, we have the connections. We’ve created a nationwide network of dealerships that have special finance departments that work with subprime lenders. To find a dealer near you with bad credit lending options, all it takes is filling out our free car loan request form. It’s quick, secure, and completely online. We’ll get to work finding a dealership for you!