Before you dive head-first into the world of subprime auto financing, it's a good idea to know what you're getting into and what to expect. We're covering the common requirements of subprime lenders and the items you need to prove that you're ready for a car loan.
What is a Subprime Lender?
Subprime lenders are also called bad credit auto lenders. They specialize in assisting borrowers with poor credit, those who've gone through bankruptcy, and those in other challenging credit circumstances. Subprime can also refer to the credit rating as well, typically defined as a credit score around 501 to 600, or those with a credit score below 660. Borrowers with credit in this credit score range are typically referred to as bad credit borrowers and may need the help of subprime lenders to get an auto loan approval.
Getting into a subprime car loan means finding a dealership that's signed up with these lenders. Many dealerships are signed up with third-party lenders that can finance borrowers with lower credit scores. The finance manager at these dealerships acts as the middleman between you and the lender. Locations that are signed up with subprime lenders are called special finance dealerships.
Subprime lenders differ from traditional auto lenders (think banks, credit unions, online lenders, and some automaker's captive lenders) in that a poor credit score isn't enough to get turned down for financing. They know that your credit isn't going to be perfect when you're seeking a subprime car loan. So, they look at your credit history as a whole, your income, living situation, and many other factors to determine your creditworthiness and eligibility for vehicle financing.
Requirements of Subprime Auto Loans
Since every lender varies in their specific requirements, we can't provide an all-encompassing list of requirements – but we can provide some of the more common ones you're likely to encounter. At Auto Credit Express, we've created a network of dealerships that are signed up with subprime lenders. Thanks to our dealer network, we know the commonly requested documents you need to prepare for a trip to the dealership.
Common requirements of subprime financing typically include:
- Income – To qualify for any car loan, you need income. Subprime lenders usually require around you to have $1,500 to $2,500 of minimum monthly income (before taxes). Prove your income with 30 days of computer-generated check stubs that show year-to-date income. This requirement typically needs to be met by a single source, but some subprime lenders may allow multiple sources of income to meet this requirement in certain circumstances.
- Residency – Subprime lenders require proof of permanent residence. This can be proven with a recent utility bill in your name, or a recent bank statement.
- Down payment – Having bad credit almost always means needing a down payment to qualify, and subprime lenders typically require at least $1,000 or 10% of the vehicle's selling price.
- Working phone – Subprime lenders may need to contact you, so they require a working contract cell phone or landline phone. Proven with a recent phone bill in your name.
- Valid driver's license – To drive the car off the lot, you need a valid driver's license. This also proves your identity. Your license can't be revoked, expired, or suspended.
- Personal references – This isn't a requirement to qualify for financing, but it's likely the lender will ask you for a list of references. Typically, they ask for five to eight references with complete contact information. The only requirement with references is that they don't share your address.
Remember that these are only general guidelines for what to expect from a subprime lender, but it's definitely a good place to start!
Your personal situation may require the need for more or different documents to qualify you for auto financing. For example, if you had a bankruptcy that was recently discharged, then you may need your discharge papers to prove you're in the clear. Another common situation is if your income isn't W-2 and you don't receive check stubs. If you're a 1099 worker, then you're likely to need two to three years of tax returns to prove you have the income for an auto loan.
Letting the special finance manager know what your situation is can make the process easier, and help move it forward without too many snags.
Finding a Special Finance Dealership
Subprime lenders are third-party, so locating one without finding a special finance dealership isn't likely to be easy, but we want to help. Let us get you connected with a dealership that's signed up with subprime lenders in your area.
Here at Auto Credit Express, we've created a nationwide network of dealers that are ready to assist borrowers in all sorts of tough credit situations. Get started right now by filling out our free auto loan request form. There's never an obligation to buy once you get matched to a dealer, it's completely free, and we do all the hard work of looking for the bad credit resources for you.