As a bad credit borrower, you’re probably going to need to work with a special finance or buy here pay here dealer when you need an auto loan. These are two types of car dealerships that deal with bad credit. You should begin by finding out which type of dealer may be right for you so that you can take steps toward getting approved for an auto loan.
Know What You Need
The first step to finding the right bad credit car dealership to work with is to know where your credit stands.
You can start by requesting your credit reports at www.annualcreditreport.com. This is the federally-authorized website where you can request a free copy of your credit reports once every 12 months. You can pull reports from all three of Equifax, Experian, and TransUnion, the three major credit bureaus.
It’s important to check them all carefully to make sure that the information is accurate. If not, contact the reporting bureau to dispute the error(s) and have it corrected.
To stay on top of your credit year-round, a good strategy is to request one report every four months. Keep in mind that each could have slightly different information, depending on who your creditors report to.
You're also going to want to get your credit score. Many banks, credit unions, and credit card providers give people free access to their FICO credit score, which is the one you're going to want to check. If yours don't, you can pay a small fee to get your credit score through the credit bureaus or directly from FICO at www.myfico.com.
Once you know what your credit situation looks like, you can determine if you should be looking for a special finance dealer, or a buy here pay here (BHPH) dealership.
Special Finance Dealerships
Special finance dealers work with indirect lenders called subprime lenders. These lenders look at factors in addition to your credit score in order to approve you for an auto loan. Even though these lenders take other things into account, they still rely on your credit score in part.
If your credit score is the subprime or non-prime range (a FICO score between 560 and 669), you likely need one of these lenders. With really bad credit (a FICO score of 300 to 559), you still may be able to use a subprime lender, although it depends on their requirements and your credit history.
In addition to your credit score, these lenders check to see if you have the ability, stability, and willingness in order to qualify for a car loan. They do this by requiring you to provide proof of:
- Income – Subprime lenders typically require a minimum of $1,500 to $2,000 a month of earned income, before taxes, from a single source of employment.
- Residence stability – Lenders need to know where the vehicle is going to be parked, so they require you to provide a utility bill in your name, at the address listed on your application.
- Proof of a working phone – Bring in a recent bill from a landline or contract cell phone in your name.
- List of personal references – A list of five to eight personal references complete with names, addresses, and phone numbers is typically required.
- A down payment – Down payments are usually required for bad credit auto loans, though the amount varies. Typically, you’re asked to provide at least $1,000 or 10% of the car’s selling price, whichever is less.
When you’re working with a subprime lender through a special finance dealership, you may have more options than you think. However, there are a few things you should be aware of.
You should expect a higher than average interest rate when you have bad credit. Also, it may actually be easier to finance a reliable used vehicle or certified pre-owned car than a cheap vehicle.
Subprime lenders have guidelines that you have to follow: they typically don’t finance loans under $5,000, cars over 10 years old, or vehicles with more than 100,000 miles on them. Keep in mind that the specifics can vary from lender to lender.
Buy Here Pay Here Dealers
If you don’t have much in the way of credit history, or your credit score is on the lower end of the deep subprime range, it’s possible that you could be turned down by a subprime lender. In these cases, you can usually turn to a BHPH dealer.
A buy here pay here dealership is a type of in-house financing dealer, which means they're also a lender. These dealerships don’t usually look at your credit, so they can typically offer auto loans to most individuals, regardless of their credit situation. They're more concerned with whether or not you’re able to make your payments.
BHPH dealers only sell used cars. You’re also going to pay a higher interest rate, and are expected to make a down payment. The down payment requirement at these places is often based on the price of the vehicle you choose, so it can vary widely.
These lots can be a good choice for those that have been turned down for a subprime loan, but since they typically don’t check your credit, they may not report your loan or on-time payments, either. This means that your BHPH loan couldn't help you improve your credit score like a loan through a subprime lender does.
Find a Car Dealership That Deals with Bad Credit Through Us
If you’re having trouble finding a dealership that deals with bad credit, we want to help. Auto Credit Express is more than just a place to come for expert auto financing advice, we can also match you to a special finance dealer near you.
We work with a nationwide network of bad credit car dealerships, including BHPH dealers. When you’re looking for the right place to go for your next auto loan, start here. Simply fill out our free and secure car loan request form, and we’ll get to work connecting you with a local dealership.