When you have bad credit, you may feel like you can’t go to a traditional dealership. Maybe you’ve been turned down already and you don’t want to waste your time. While your car buying options may be more limited than if you had good credit, there are lenders that work with credit-challenged buyers.
Where to Start When You Have Bad Credit
If you’re thinking about getting an auto loan, you should look up your credit score and reports first and foremost. You can request your credit reports for free at www.annualcreditreport.com, every 12 months, from each of the three credit reporting agencies: TransUnion, Experian, and Equifax.
There are a few categories of credit – not just good and bad. Experian defines credit categories by score range as:
- Super prime – 781 to 850
- Prime – 661 to 780
- Nonprime – 601 to 660
- Subprime – 501 to 600
- Deep subprime – 300 to 500
Once you find your credit score, you can check it and see where you stand. Be sure to look through your credit report(s) and make sure there are no mistakes or negative outstanding accounts that shouldn’t be there.
Be sure to make all payments on time while you're getting ready to apply for a car loan. A large part of your credit score is payment history – 35%. Lenders want to be sure you’re responsible with your finances and use this to determine your creditworthiness, which can help them make a decision while considering you for an auto loan.
Locate Your Documents and Have a Down Payment
Subprime lenders – lenders that work with borrowers who have less than perfect credit – require a number of documents, as well as a down payment, for you to qualify for a bad credit car loan. These items may include:
- Proof of income
- Proof of residence
- Proof of a working phone
- A valid driver’s license
- Personal references
- Down payment
A down payment is usually one of the hardest requirements for a bad credit borrower to meet. However, if you have a vehicle with equity you can trade in, lenders will take it in place (or as part of) a down payment.
Good Credit Versus Bad Credit Car Buying
Typically, when a buyer has good credit, they can pick out the car they’d like to buy, get approved for the loan, and then take delivery. With bad credit, you can expect almost the opposite.
Subprime auto lenders first determine if you’re eligible for approval. If you are approved, the lender issues what's known as a payment call to the dealer based on your available income and credit score. From there, you choose a vehicle from dealer stock that fits within that payment.
Where Can I Go Next?
If you’ve been turned down for a car loan because of bad credit, or no credit, work with us at Auto Credit Express. We’ve teamed up with dealerships nationwide that may be able to help with your unique credit situation. We’ve created a free, no-obligation form that only takes a few minutes to fill out. To see if we can match you with a dealer in your area, fill out our auto loan request form.