Finding the right lender for your credit situation can seem daunting if you have bad credit or have never financed a vehicle before. Even with bad credit or no credit, there are lenders that may consider you for car financing.
Your Creditworthiness and Car Financing
When you apply for car financing, lenders typically check a few things to determine your eligibility for an auto loan. Whether or not it's hard to get approved for financing usually depends on your credit score, income, monthly bills, and past credit behavior.
If you’ve never borrowed from a lender or had a credit card, you may have a thin credit file. Put simply, this means that your credit history contains little or no information about how you’ve handled past loans or bills. Since your credit score is generated from the information listed on your credit reports, your score serves as a snapshot of your creditworthiness. Auto lenders typically use your FICO credit score as a way to judge your ability to repay a car loan.
A traditional auto lender may see a thin credit file or a poor credit history and turn you down for financing. Since a thin file typically means you don’t have much proof that you’ve handled past lines of credit well, lenders sometimes view no credit borrowers as riskier. Borrowers with a not-so-great credit history can also be viewed as high risk, and may not get approved by traditional lenders.
When we say traditional lenders, this usually means credit unions, banks, or a manufacturer’s captive lender – lenders that prefer borrowers with good credit scores. This doesn’t mean that all bad credit borrowers get turned down for financing from these lenders, but a thin credit file and rocky credit history can make it hard to get approved.
Increasing Your Chances of Approval
While being a no credit or bad credit borrower can make it more difficult to get approved, there are ways to improve your chances.
If you’re a brand new borrower, trying to get financed through your personal bank or credit union first is a good first step. If your accounts are in good shape, and you’ve been with them for a while, they may be willing to work with you. Credit unions, especially, are known for being more lenient than other traditional lenders.
For many car buyers with bad credit or no credit, enlisting a cosigner on your auto loan is a great way to get into a vehicle. A cosigner essentially lends you their good credit score to help you qualify for a loan. In a nutshell, a cosigner agrees to make the car loan payments if you’re unable to. Your cosigner doesn’t get any rights to your vehicle, but their credit score, along with yours, can be positively or negatively affected based on how you handle the loan.
Another option for borrowers is going with a subprime lender through a dealer’s special finance department. Subprime lenders often work with bad credit and no credit borrowers because they use more than just a credit score to determine eligibility.
They use your income, residence stability, work history, and a down payment alongside your credit score to get a bigger picture of you as a borrower. If you can’t get approved for a subprime auto loan by yourself, you can also use a cosigner on a subprime car loan.
Getting Financed With the Right Lender
Often, getting accepted for car financing means locating the right lender for the job. In the case of many bad credit or no credit borrowers, it may be hard to get approved by a credit union, bank, or automaker’s lending arm. However, there are dealerships all over the country with special finance lending options.
If you’re ready to start car shopping, begin with us at Auto Credit Express. We have a nationwide network of dealers that work with subprime lenders. We’ll look for a dealership in your area after you’ve completed our free auto loan request form. It’s secure, completely online, and we’ll get to work right away!