If you can’t get approved through standard financing, you may be able to finance through a dealership that works with subprime lenders – if you can meet their conditions. Things can get tricky, however, because the requirements of these lenders are different than traditional lenders. Here’s what you need to know.
How Dealership Special Finance Departments Work
Some dealerships have special finance departments that work with subprime, or bad credit, lenders. Subprime lenders use more than a credit score to determine your eligibility for a loan.
Bad credit lenders evaluate your income, job and residence stability, past payment history, and much more to determine if you qualify and how much car you can afford, based on your credit score, credit history, and the information you provide them.
If approved, they send the dealer a payment call, which is the maximum monthly loan payment you’re approved for. From there, you choose a vehicle from the dealership’s inventory that fits within that budget.
Once you’ve chosen a car, you finalize the rest of the paperwork with the dealer. You can then purchase additional services or coverages, such as GAP insurance or extended warranties, if you want.
To be considered for subprime financing, there are also some documents you need to put together.
Requirements for a Bad Credit Car Loan
With a bad credit lender, you must meet their requirements before you’re considered for auto loan approval. Some common documents you must provide include:
- Driver’s license – Must be valid (not revoked, suspended, or expired) with your current address.
- Proof of income – Subprime lenders typically require a monthly minimum income of anywhere from $1,500 to $2,000, pre-tax. This income must be proven with computer-generated check stubs that show year-to-date income.
- Proof of residence – This can be proven with a recent utility bill, in your name, with your current address.
- Proof of a working phone – A working cell or landline phone in your name, proven with a recent phone bill. Prepaid phones usually aren't accepted.
- Down payment – Bad credit car loans require a down payment, typically of at least 10% of the vehicle’s selling price, or $1,000, whichever is less. Equity from a trade-in can contribute to this down payment requirement as well.
- Personal references – Lenders typically require a list of between five to eight personal references of family members, friends, or coworkers, with their complete contact information. None of these references can be someone living at the same address as you.
Since all subprime lenders are different, the listed requirements are general guidelines of what to expect in terms of income and the number of personal references. It’s also possible for some lenders to require more or fewer qualifications.
Additional items may be required based on your own situation. For example, if you were recently discharged from a bankruptcy, you need to bring your discharge papers and, possibly, other paperwork.
The hardest for many bad credit borrowers to meet is the down payment requirement – but it’s really in your best interest to put down as much as you can reasonably afford. The more money you put down, the less you spend on interest charges during the loan term, and the smaller your monthly loan payment. And if you have a trade-in with equity, it can add to your down payment, and possibly cover all of it.
Where Do I Find Subprime Lenders?
Subprime lending is more readily available than ever. But if you want to take the hassle out of finding a dealership that offers special financing, we want to help with that. At Auto Credit Express, we’ve teamed up with dealers all over the country that have subprime lending options.
You simply fill out our secure auto loan request form, and we get to work finding a dealership in your local area. The form is completely free (yes, free!), and takes only a few minutes to complete. To get started, click here!