Dealing with bad credit isn’t easy, and it can be even more difficult when you need an auto loan. If you have a 550 credit score, your car buying options are probably going to be more limited compared to somebody with good credit. However, it doesn't mean you can't get approved for an auto loan, and we can help you find one.
Types of Lenders to Work With
What are your options when you have bad credit? While you should still try to get pre-approved with your bank or credit union, you likely aren’t going to get financed through either one.
If they turn you down, your next step is to look for a dealership that works with credit-challenged car buyers. We can assist you in searching for one, but let us explain the two types of lenders you can expect to work with first:
- Subprime lenders – These lenders offer loans through special finance dealers. They consider your credit score, but they also use additional factors to qualify you, such as your income, residence stability, and job stability. What makes financing through a subprime lender great is that you get the chance to improve your credit score with on-time loan payments.
- Buy here pay here dealerships – Buy here pay here (BHPH) dealers offer in-house loans for the vehicles on their lots. The best part about these types of places is that they don't use your credit when qualifying you, making it easier to get approved if you have bad credit or no credit. Instead, they base approvals on your income. Because they don’t run credit checks, they may not report your loan or timely payments to credit bureaus, which means you wouldn't be able to improve your credit score over time.
With both types, you’re typically required to make a down payment and you can expect your interest rate to be higher than average – potentially in the double digits. This increases the overall cost of the loan, and it’s something you need to be aware of when budgeting for one.
How to Increase Your Approval Odds
Even though these lenders specialize in bad credit auto loans, it isn’t always simple to get approved for financing. Besides coming in prepared with the proper documents ready, you may want to consider taking some extra steps to increase your approval odds.
You could always make a larger down payment than what’s required. This not only increases your approval odds, it helps you save money on the overall cost of the loan.
You could also add a cosigner or co-borrower to the loan. Don’t get the terms "cosigner" and "co-borrower" confused. Even though both need to have good credit and enough available income to qualify for a loan, they’re not the same thing.
Cosigners sign on the loan so you can use their good credit to boost your application. They aren't equal owners of the car, but the loan shows up on their credit reports and can impact their credit score.
Co-borrowers, on the other hand, are equal owners of the vehicle and have their name listed on the title. You can combine incomes to qualify for a loan with a co-borrower who is your spouse, but not with a cosigner. This allows their income to give your application a boost so you can potentially qualify if you couldn't before, or qualify for better terms.
Ready to Find a Car Dealership?
Don’t let your bad credit hold you back from getting the auto loan you need. At Auto Credit Express, we specialize in connecting bad credit car buyers to local dealerships that are signed up with subprime lenders.
All you have to do to get started is fill out our free and easy auto loan request form, and we’ll work to match you with a dealer near you.