Getting a car loan with bad credit is far from impossible, and there's no minimum credit score requirement to get financing – you just need to find the lender that's right for your particular situation. Not all lenders work with credit-challenged borrowers, but those that do may not be as out of reach as you're imagining!
Preparation Is Half the Battle...
How you prepare for your next auto loan is almost as important as working with the right lender. It's not enough to think that you can want a certain kind of vehicle, find it at a car lot, and put down enough money to drive it home. There are a lot more steps to contend with, especially if your credit score isn't the greatest.
Get your credit score
Even though there's no minimum credit score to qualify for an auto loan, different lenders work with different borrowers, and it's a solid idea to know where you are creditwise when you start. Right now you can look at your credit reports from all three national credit bureaus – TransUnion, Experian, Equifax – once a week for free. Simply visit www.annualcreditreport.com to take advantage of this access until April 2022.
Once you know where your credit score stands, and what's on your credit reports, you open doors to researching your options and can see where you have an opportunity to improve your credit situation. For instance, knowing your credit score you can research the average interest rates for people in similar positions. And, seeing where your credit reports are lacking can help you know what steps to take toward credit repair.
Our dealership network, which works with bad credit borrowers, reports an average interest of around 13.6% for consumers. This may seem high, but keep in mind that credit score is the leading driver of interest rates, so the better your credit score is, the better your chance for a lower interest rate.
Prepare your budget
Your budget is more than just your spending cap on a vehicle. Lenders do several calculations when it comes to bad credit borrowers. Believe it or not, lenders don't want you to go broke just trying to make a car payment.
For this reason, they figure out your debt to income (DTI) and payment to income (PTI) ratios. These tell a lender how much of your monthly pre-tax income is being used by your existing bills, and how much your combined auto loan and insurance may be. You can calculate these yourself, and then set your estimated maximum budget with our car loan estimator.
Remember, the amount of auto loan you're eligible for depends on many factors, and you must be approved for a loan before picking out a vehicle if you're trying to get a bad credit car loan.
Gather your paperwork
To make the most out of your auto loan experience, it pays to have your ducks in a row before you set foot in a dealership. Part of the reason that lenders can work with you through special finance dealerships is that they look beyond your credit score to evaluate your situation on multiple levels. They're checking to make sure that you have the ability, stability, and willingness to take on a car loan.
To prove this, bad credit lenders generally require you to provide:
- Proof of income with a recent computer-generated check stub showing year-to-date income of at least $1,500 to $2,500 a month from a single source.
- Proof of residence with a current utility bill or bank statement in your name, at the address listed on your application.
- Proof of a working landline or contract cell phone, satisfied with a bill in your name. Prepaid phones aren't eligible.
- Five to eight personal references with complete contact information.
- A valid driver's license that isn't revoked, expired, or suspended.
- A down payment of at least $1,000 or 10% of a vehicle's selling price is also typically required.
Now that you know what to expect from subprime lenders, it's time to ensure that you're looking for an auto loan with the right lender for your situation.
Find the right fit
As a borrower with poor credit, a subprime lender at a special finance dealership is likely to be a good way for you to get the auto loan you're looking for. However, it's far from your only option.
Subprime lenders are good because they evaluate you on more than just your credit. They do still check your credit, though. They can tell the difference between bad credit due to mishandling of your finances and bad credit that happened because of something outside of your control. But they still can't grant everyone a loan in every case.
If you've been turned down by a subprime lender, it may be time to look at an option that may not even factor in your credit. In-house financers, also known as buy here pay here dealers, are both dealer and lender. Often, these car lots don't pull your credit to determine if you're eligible for financing. Typically they rely on your proof of income and how large of a down payment you're willing to make in order to approve you.
Be aware though that car lots which don't use your credit to base your loan on may not report your timely payments to the credit bureaus, so your credit score may not improve over time with this loan.
If your credit isn't the best, but there's nothing particular that's standing in the way of an auto loan, you may be able to get prequalified for financing. Preapproval typically comes from a direct lender such as a bank, credit union, or online lender. Direct loans often come with a lower interest rate than some other loans for bad credit borrowers, and can essentially turn you into a cash buyer at a dealership if you get a preapproval.
You still have to meet the lending requirements of the lender, and if your credit score isn't at its best, you may have better luck online or through a credit union where you're a long-standing member.
… Working With the Right Lender Is the Other Half!
Here's the thing though – having good credit and getting a car loan don't go hand in hand! Sure, a higher credit score can open up some doors when it comes to getting a great interest rate and financing a wider selection of vehicles, but everyone has to start somewhere.
When you have bad credit this often means working with a subprime lender. Many of them are signed up with special finance dealerships across the nation, but it can be hard to pick them from a crowd. Rather than weeding through the chaff on your own, let us plant the seeds of your next loan by finding a dealership in your local area that's signed up with the lenders you need.
Auto Credit Express can help you save time and hassle by matching you to a special finance dealer. The process is fast and free, so get started right now by filling out our auto loan request form.