Life can sometimes cause a lower credit score, which is inconvenient to say the least. Poor credit can get in the way of getting the things you need, like a car. With bad credit, you may have to look into a different kind of auto lending until your credit score is repaired.
Life Events and Bad Credit
If a life event outside of your control causes a lower credit score, it’s called having situational bad credit. This can happen to many borrowers, and it can hurt their chances of getting approved for a car loan.
Some common examples of circumstances that can lead to situational bad credit include:
- Medical debt or illness
- Job loss
- Identity theft
Spouses who are divorced often find themselves dividing up debts, closing accounts, or simply losing half their income, which can all lead to a lower credit score.
Having to take time off of work due to an illness, or racking up medical bills that can’t be paid right away are also common bad credit scenarios for many Americans. Additionally, the recent coronavirus pandemic caused widespread layoffs and skyrocketed unemployment numbers. It’s hard to stay on top of your credit score when your income is taking a hit.
Bad Credit and Car Loans
When you need a vehicle, having situational bad credit can be frustrating. If you’ve always had good credit before, you’d think that some lenders would be understanding! Unfortunately, that’s not always the case.
Your credit score is a cornerstone for determining your ability to take on an auto loan, and lenders may not take your past credit history into account during the loan process. For many lenders, it can be about cold, hard risk factors and the state of your situation right now in the present moment.
If your credit score falls below around 660, you’re usually considered a subprime, or bad credit, borrower.
When life gets in the way of your next car loan, know that you still have vehicle financing options available. There are lenders that look at a borrower’s overall credit history, financial situation, and living stability to make their loan decision – not just your credit score. They are called subprime lenders, and they work with borrowers who are in the subprime credit scoring category.
Subprime Auto Loan Requirements
While traditional auto lenders may have strict credit score requirements, subprime lenders know that there’s more to a borrower than just that three-digit number.
To see if you’re ready to take on a car loan, subprime lenders look at your overall financial stability. Stability is a key word for subprime lenders. To get an idea of how stable you are (and how likely you are to repay the loan), they examine things like your work history, how long you’ve lived in the same area, and your income. Many also consider your past credit history to get a better picture of you as a borrower.
In addition to examining your overall stability, subprime lenders require a down payment, generally of at least $1,000 or 10% of the vehicle’s selling price (in cash and/or trade-in equity), and some documents that prove you’re able to repay an auto loan. You’re likely to need to include a utility bill in your name, your recent check stubs, proof of a working contract phone, a list of personal references, and possibly other documents depending on your personal situation.
Essentially, expect to prove your residency, income, and come prepared with a down payment.
Subprime Car Loans and Credit Repair
When you have situational bad credit, one of the things you should be concerned with is repairing that credit back to its original glory. Bad credit doesn’t have to stay bad forever!
A good way to work toward a better credit score is to make sure that the new credit you take on is reported. Subprime car loans are reported to the major credit bureaus, which means your on-time payments can repair your credit. Auto loans are long-term installment loans, which have the potential to rebuild your payment history (the largest factor in determining your credit score).
Other ways you can repair your credit include:
- Lowering credit card debt
- Keeping old, unused accounts open
- Paying all bills on time
- Settling collection accounts
- Removing errors on your credit reports
Getting the Auto Loan Connections You Need
With a lower credit score, it can be hard to get approved for new credit that can repair your credit for the future. Finding the lending resources you need for your credit situation can be a hassle, but since we have you here, work with us at Auto Credit Express!
We’ve gathered a network of bad credit dealerships, and our connections go coast to coast. Get the ball rolling right now by filling out our free, secure, and quick car loan request form. We’ll look for a dealer in your area that’s signed up subprime lenders, and there’s never any obligation to buy. Start your path on credit repair today!