Getting a car loan with bad credit isn’t easy. If you tried to get approved for financing already but were turned down, you may still be able to get an auto loan – you just need to work with the right lender. We can point you in the direction of an appropriate dealership, but let us first explain the types of lenders you could be working with and what you need in order to qualify.
Types of Lenders to Work With
More than likely, you’ve already tried to get pre-approved from your bank or credit union, or another type of online lender. These are great places to start, but these direct lenders generally only offer financing to borrowers with good credit.
Instead, you stand a better chance of getting approved if you apply with indirect lenders such as subprime and captive lenders, or even buy here pay here (BHPH) dealers.
Let’s take a closer look at those last three lenders:
- Subprime lenders – These lenders work through special finance dealerships, and know how to handle challenging credit situations. They use your credit to qualify you, but they also rely on additional factors such as your income and residence stability, to name a few.
- Captive lenders – Captive lenders are the finance subsidiaries of car manufacturers. Examples include GM Financial, Honda Financial Services, and Ford Motor Credit. Compared to subprime lenders, it can be more challenging to get approved for financing through a captive lender if you have poor credit, although it's sometimes possible. To improve your chances, you may want to consider adding a cosigner or co-borrower to the loan.
- Buy here pay here dealers – BHPH dealerships offer in-house financing for the vehicles on their lots, which means they're also lenders. It's easier to sign and drive at these places, since many BHPH dealers don’t perform credit checks. They base approvals on your income and down payment, instead. The downside is that some of these dealerships don’t report on-time loan payments to the credit bureaus, which means the loan won't give you a chance to improve your credit score.
Requirements for Bad Credit Auto Financing
Now that you know the types of lenders you could be working with, what does it take to qualify for a bad credit auto loan? Let’s break it down by lender:
Requirements for captive and subprime lenders:
- Proof of income – Both lenders need you to meet a minimum income requirement. The amount varies, but most lenders look for an income of at least $1,500 to $2,000 a month before taxes from one job. You can bring in a recent computer-generated pay stub showing year-to-date earnings to serve as proof.
- Proof of residence – A recent utility bill in your name at the address listed on the application is needed to prove you live where you state you do on the application.
- Proof of a working phone – A recent phone bill in your name is required. This can be for a landline or contract cell phone, but prepaid phones usually aren’t accepted.
- A list of personal references – Subprime lenders usually ask for a list of five to eight personal references complete with full names, addresses, home and work phone numbers, and email addresses.
- Down payment – Most lenders require a down payment of at least $1,000 or 10% of the car’s selling price, whichever is less, although this can vary by lender.
Requirements for buy here pay here dealers:
- Proof of income – Similar to captive and subprime lenders, you need to bring in proof of income. Expect a similar minimum income requirement, but it can vary more widely because BHPH dealerships are independently operated. BHPH dealers are also more lenient when it comes to income sources. More than one job can count toward meeting the minimum requirement, as can unearned income, as long as it can be proven with the acceptable documentation.
- Down payment – You usually have to make a down payment at a BHPH dealership. The amount of money down required is typically based on the price of the vehicle you choose, so it can vary widely.
Ready to Find a Dealership?
Bad credit doesn’t mean you can’t get an auto loan, it just means your financing options are limited. You should apply for a car loan again even if you've been turned down. This time, try going through a lender that specializes in handling unique credit situations.
At Auto Credit Express, we want to help you get started on your auto financing journey. We work with a nationwide network of dealers that are experts when it comes to bad credit. Fill out our free and easy car loan request form, and we’ll work to connect you with a dealership in your area.