Bad credit affects your auto loan in many ways, including making it more difficult to get approved and playing a role in what terms you receive. While your credit plays a large role, a low credit score doesn't mean you're automatically disqualified from financing. Getting approved for a car loan also depends on a few other factors, such as the type of bad credit you have and the lender you apply with.
Types of Bad Credit
There are two different types of bad credit, and one is looked on more favorably by lenders than the other. Which one you have could be a factor in whether or not you get approved:
- Situational bad credit – Situational bad credit is when your credit is negatively affected due to a sudden unforeseen change, such as a job loss or health issues that swamp you with medical bills. Most subprime lenders sympathize with consumers dealing with situational bad credit if they had good credit before the event. It’s possible to get better loan terms with this type of bad credit, as long as you work with a lender that specializes in bad credit auto financing.
- Habitual bad credit – Habitual bad credit is when your credit is poor due to frequent late payments and accounts in collections. Consumers with habitual bad credit are more likely to experience charge-offs and repossessions, too. Lenders are cautious about approving borrowers with this type of credit because there's a consistent pattern of negative actions. However, working with the right lender could get some of these consumers the second chance loan they need.
Proving You Can Handle a Car Loan
As we mentioned before, your credit isn’t the only thing that subprime lenders look at. These lenders want to make sure you’re able and willing to make your loan payments – regardless of your credit situation – and ask that you provide proof of these four things:
- Income – A recent computer-generated pay stub showing year-to-date earnings. Subprime lenders typically have a minimum monthly income requirement of $1,500 to $2,000 before taxes from a single job.
- Residence – A recent utility bill in your name showing the address listed on the application.
- Working phone – A recent phone bill in your name; it can be landline or a contract cellphone, but not a prepaid phone.
- Identity – A valid driver’s license or state I.D.
Need Help Locating a Dealer?
Bad credit can affect your car loan, but it doesn't have to stop you from getting approved for one.
Finding a lender that deals with bad credit auto financing isn’t easy, and it can be stressful going from dealer to dealer and getting turned down. Luckily, Auto Credit Express is here to help. We specialize in matching consumers to local special finance dealerships that have the lenders to get people with bad credit financed.
Our service is free and comes with no obligation. All you need to do is fill out our fast and straightforward car loan request form, and we’ll get right to work connecting you to a dealer.