The kind of car you should get with bad credit depends on a lot of different factors. However, there may be more vehicle options than you think if you know what to look for. We've got tips for making the most of your bad credit auto financing experience!
What Kind of Car Can I Get?
The kind of car you can get with bad credit is going to be determined by your individual situation and the lender you're working with. It's important to know that the bad credit auto loan process isn't the same as getting financing with good credit. However, you may still have many of the same options when it comes to vehicles.
Even with less than perfect credit, some borrowers can still qualify for new cars. Many credit-challenged consumers often think that they're stuck financing a used clunker if they can't afford to buy one outright, but this isn't true.
Subprime auto lenders generally give loans for a wide range of cars, but won't finance a vehicle that's too old, or in too rough shape. Minimum loan amounts are usually $5,000 and vehicles have to be under 10 years old with less than 100,000 miles on them.
With the quality of vehicles these days, you have a better chance at getting an affordable, reliable, used car, possibly even a certified pre-owned one. And, affordable new vehicles aren't out of reach either. It all comes down to what you can afford to finance, and what your needs are.
When you're looking for another (or perhaps first) car, it's important that you get the right fit for you. Everyone's driving needs are different, and that's why it's important to do your research, build your budget, and know what you need before you start the shopping process.
Know What You Need
If you're like many shoppers you may start online building your dream ride – then have to scale back your expectation to match your budget or vehicle needs. Sure, you may want a turbo-charged race car, but when you're carpooling kids, it's not practical. To really start figuring out what kind of vehicle you should get, it helps to make a list of things you must have and things that knock an option out of the running.
For instance, if you drive an hour or two into the office each day, or have to sit through massive blocks of heavy traffic, fuel economy may be one of the most important factors in car buying. If you need to fit a family in comfortably with plenty of room for gear, you might shop by seating capacity.
On the other hand, if you're sticking to your guns about leather seats and heated steering wheels, you might find shopping for a vehicle with poor credit a bit more of a challenge. It's not that you shouldn't be able to get everything you want in your vehicle, but when you start with a bad credit car loan you may have to sacrifice luxury for the sake of practicality. Be sure to focus on what you need in a vehicle, not what you want.
Once you make a list of must-haves it's time to dive into research. Check out both new and used listings to find a vehicle that ticks all the boxes you need, and even look at some that almost check off everything on your list, just so you know what's out there. You can start by reading some expert reviews on a trusted website such as Kelley Blue Book, NADAguides, or CarsDirect. Don't forget to look up consumer reviews as well, and see how people feel about the vehicle(s) you're interested in.
Think of car shopping like clothes shopping: sometimes you've got to try things on and that's where your test drive comes in. When you're looking for the right fit in a vehicle it's important to take a test drive and make sure everything fits your needs, is comfortable to you, and is safe to drive. If you're looking at a used car make sure to have it checked out by a certified mechanic before you sign any paperwork.
Know What You Can Afford
Knowing what you want out of a car is one thing, but getting the right vehicle for the right price is a whole other element. To know what you can get for your next car, you need to build a car-buying budget.
When you're working with a subprime lender as a credit-challenged consumer, you're typically expected to prove income of at least $1,500 to $2,500 a month before taxes from a single job. If you don't meet this minimum threshold, qualifying for an auto loan on your own can be hard.
Additionally, you have to have enough income available to comfortably pay for your car loan and auto insurance. Lenders ensure you meet these qualifications by calculating your debt to income (DTI) and payment to income (PTI) ratios. You can do these yourself to ensure you're not overspending on your auto loan.
Generally, you're required to have at least 50% to 55% of your pre-tax income available after paying your existing bills to qualify for a subprime car loan. Lenders also require that your combined auto loan and insurance payment doesn't take up more than 15% to 20% of your income by itself, but the lower the better.
Remember, too, that interest rates are based mainly on credit score, so a lower credit score typically means a higher rate. On average, consumers in our dealer network qualify for interest rates of around 13%. The higher your interest rate the more you pay for the loan overall. Because of the higher expected interest rate, it's important not to stretch your loan term too long, the longer your loan the more you pay in interest charges.
However, you can combat higher interest charges by making a large down payment. Chances are that you're required to make one anyways as a bad credit borrower. Typically, subprime lenders require a down payment of around $1,000 or 10% of the vehicle's selling price. As a general rule, the more you can put down on your auto loan, the more money you can save in interest charges overall because a down payment lowers the amount you have to borrow.
Lastly, don't forget that the sticker price is just the first number in calculating the total cost of a car loan. You're expected to carry full coverage auto insurance the whole time you're financing, and you have to account for taxes, title, and license fees, as well as the cost of fuel and maintenance during the life of your vehicle.
Know Where Your Credit Stands
In order to know where to start your auto financing journey, you need to know where your credit stands so that you can research common auto loan amounts and interest rates for people in similar situations. Of course, your auto loan is unique to you and depends on what you qualify for. But if you don't know what a lender is seeing in your credit reports, or what your credit score is you're letting them call all the shots.
By doing your homework, knowing the average interest rates for different credit tiers, and where your credit score falls on that scale, you have the negotiating power to fight for better auto loan rates and terms for your situation. It's also important to know what you need to work on to improve your credit. A car loan is a wonderful tool for building credit, too, because payment history is the largest factor that makes up your credit score.
The Bad Credit Auto Loan Process Is Different
When you're getting a bad credit car loan, the approval must come first. The loan amount you qualify for determines which vehicles you can get. Once you apply for an auto loan with a special finance dealership, they pass your information along to their lenders.
If you're approved, that lender calls the finance manager to let them know what interest rates you qualify for and what your maximum monthly payment can be. Then, you choose a vehicle from the dealer's inventory that meets your needs and fits into the loan requirements.
Finding the Right Dealership
Your options for getting the right car for you don't have to be limited by your credit situation. If you're ready to take the next step on your auto financing journey, let Auto Credit Express be your guide. We have a coast-to-coast network of special finance dealerships that are signed up with subprime lenders that are prepared to work with bad credit borrowers. We can make the search for a dealer in your area a snap – simply fill out our fast, free, zero-obligation car loan request form to get started now!