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There's a minimum credit score needed to finance a car, but it will vary from lender to lender. When it comes to buying a car, most lenders look at your FICO credit score to determine what you qualify for. FICO scores range from 300 to 850, with 300 being a poor credit score, and 850 being excellent. The general rule of thumb is the higher your credit score, the better off you'll be. But, not everyone can have perfect credit, and imperfect credit can make financing a car more difficult.
A big factor in determining what credit score you need depends on the type of car you want to buy. If you want a brand new car, lenders will want to see that you have good to excellent credit. But if you fall in the fair to poor range, you'll most likely need to consider buying a used or certified pre-owned vehicle. Buying a used car is more cost-friendly overall, and, in the future when your credit improves, you can choose to refinance or purchase a newer car.
If you have bad credit or little to no credit, many lenders may require you to have a cosigner, but there are ways to finance a car without a cosigner. There are subprime lenders who specialize in helping bad credit car buyers get the financing they need. Each subprime lender will offer different loan programs and rates, and consider factors outside of your credit score. So, even if you have a credit score of 500, the good news is you may still be able to finance a car if you work with a subprime lender.
There are a lot of requirements for an auto loan to be prepared for, and there can be even more qualifications to meet if you're struggling with credit issues. Though all requirements will vary by lender, the basics, like being 18 years of age, having a valid driver's license, and being a legal resident of the US, typically remain the same.
Requirements for a subprime auto loan get a bit more specific. You'll need to provide proof of your identity, income, and residency, as well as provide proof of a working telephone and a list of references. Some of the specifics typically include:
The one thing you won't need with a subprime lender is perfect credit. These lenders are specially qualified to work with people who have poor credit, no credit, and even bankruptcies on their credit report. Subprime lenders only work through special finance dealers. Since you can't go out and get a direct loan from them, this is where we come in.
At Auto Credit Express, we specialize in helping people who are struggling with their credit by connecting them with local special finance dealers that have the right lenders available to help them get financed.
Only a lender can tell you how big of a car loan you can get approved for because of the way the bad credit auto loan process works. When you need a car loan with bad credit, you typically need to visit a dealership that's signed up with subprime lenders in order to get approved. They'll look over your application carefully and evaluate many different factors which affect how much of a car loan you can get.
The three biggest factors bad credit lenders use when qualifying you and setting your loan amount are your credit, income, and debt to income ratio:
Our Car Loan Estimator can give you an estimate for how big of a car loan you can get approved for based on these factors. However, the only way to truly learn how much of a car loan you can get is to apply with a subprime lender so they can evaluate these factors and determine which program or tier you qualify for.
When you go to a dealer or subprime lender for bad credit auto financing, you'll almost always be required to put money down. The only time you'll typically be able to put zero down on a loan is if you have excellent credit.
If you're considering a dealer that doesn't run your credit or require money down, you're looking for a buy here pay here (BHPH) dealership. BHPH dealers are in-house financers, and aren't associated with banks or other third-party lenders. When you go to a BHPH dealer, you'll purchase the car, sign the papers to the loan, and drive off the lot all in one sitting. For bad credit car buyers, this is as close to getting an instant decision on a car loan as it gets.
Before you head to one of these dealers, there are a few things to be aware of. The cars that these dealers have on their lots are typically older, high-mileage vehicles. This doesn't mean they're in bad shape, it just means you won't find a brand new vehicle. Instead of running your credit, they'll use your income as the main source for financing qualifications. And, depending on the BHPH dealer, they may still require a down payment. Finally, you'll usually need to make payments in person on a weekly or bi-weekly schedule. If you miss these payments, they can report them to the credit bureaus and be quick to repossess the vehicle.
While the process of buying a car at a BHPH dealer is quick and convenient, they should be viewed as a last resort option. Most of these dealers don't report monthly payments, and if they do, it's only your missed payments. This means a loan from a BHPH dealer can't help you improve your credit score.
The amount of a down payment always depends on your individual situation, and only your lender can say for sure what they'll require from you. The general rule of thumb, if you can afford it, is to put down 20 percent of the vehicle's selling price. If you're financing through a subprime lender, they typically require $1,000 or 10 percent of the car's selling price, whichever is less.
Having a down payment when you purchase a vehicle shows your lender that you're invested in your auto loan. In fact, studies have shown that borrowers who make a substantial down payment are more likely to successfully pay back their loan.
But, no matter the amount, having a down payment is one of the best things you can do for yourself when it comes to auto financing, especially if you're dealing with less than perfect credit. Having money down reduces the amount you're financing, which saves you money in interest charges. It can also significantly reduce the time your vehicle spends with negative equity, which occurs when the car is worth less than you owe on the loan. Keeping equity in your vehicle is important down the road when it's time to sell or trade in your car.
You can trade in a car on a bad credit auto loan to use as a down payment, but the value of your vehicle compared to what you owe on it makes a huge difference.
Most bad credit lenders require a minimum down payment of $1,000 or 10 percent of the car's selling price, whichever is less. Your trade-in can be considered to meet this requirement if it's paid off or you have equity in it, but negative equity is a different story.
When you trade in a car, a dealer will appraise it and assign it a value. If the vehicle is paid off, this is the amount you can use as a down payment toward your next vehicle. If you still owe on the vehicle, the amount of trade equity you have can be used.
Trade equity is the difference between what a vehicle is worth and how much you owe on it. Having equity means the value the dealer is willing to give you is more than the payoff amount on your loan. For example, if your car is valued at $6,000 but you still owe $4,000 on its loan, you have $2,000 of trade equity you can use as a down payment. If you don't have enough trade equity to meet the down payment requirement, you can combine its value with cash.
However, when you owe more on the loan than your car is worth, you have negative equity, which can complicate the situation. For example, if you still owe $6,000 on your loan but your vehicle is only valued at $4,000, you have $2,000 of negative equity. In this situation, you may be asked to pay off the negative equity with cash, and you'd still need to come up with the money to meet the down payment requirement.
In some cases, the lender will allow you to roll the difference over into your new loan. Keep in mind this increases your monthly payments and results in you paying interest charges on the negative equity, so it's a last resort option that's best avoided.
If you're looking to use your trade-in on a bad credit auto loan, there are some steps you'll need to take in order to prepare for the process. The first thing you'll want to do is get an idea for the value of your trade-in. You can visit vehicle valuation websites such as NADA to get an estimate on how much your car is currently worth. Once you have an idea, the next steps are to gather up some documents and get a few quotes. There are four things you'll need to bring to a dealer, but your state may require additional documents:
To get quotes, you'll want to visit at least two dealerships to see what they're willing to offer. They'll do an inspection of the car, and give you a trade-in quote. If you want, you could only go to one dealer and get a quote, but having more options is the best way to make sure you're getting the most fair offer possible.
If you want to trade in your car but there's negative equity involved, you may still be able to. There are a few downsides to trading in a car with negative equity you should be aware of. First, not every lender is willing to let you roll over the negative equity into the new loan, so you may have to pay the difference between what you owe and what your trade-in is worth out of pocket. Second, if you're able to roll over, you're still responsible for the negative equity – it doesn't go away. You'll be financing the negative equity on top of the selling price of the new car. Your monthly payments will increase, and you'll pay interest on the negative equity.
You can absolutely trade in a car with a loan on it, but any money you get has to be used to pay off your current lien before anything else. You won't have to handle this – your dealer will take care of everything involved with paying your old lender and getting the title to the car. However, paying off your existing loan is easier if there's equity in your vehicle.
Equity is the difference between the actual cash value of the car and the amount you owe on the loan. If you owe less than the car is worth, there is equity. On the other hand, if you owe more than the car is worth, you have negative equity.
Negative equity, also called being “upside down” or “underwater,” puts you in the position of having to pay the difference between the amount you get for your trade-in and how much you owe. This amount can be paid out of pocket, or rolled into your new loan. Be aware that rolling any additional amount into a new loan isn't always an option, and it'll end up costing you more in interest charges over the term of your loan. If you have negative equity in your vehicle, you may want to reconsider trading it in until you're in a better equity position or you can cover the difference out of pocket.
Your chances of getting approved to lease a car with bad credit aren't very high, although they're better than they were a few years ago. Even if you were to qualify, leasing will be more expensive and you'll face more restrictions than drivers with good credit.
Leasing is growing in popularity because it allows car buyers to get into a new vehicle with the latest gadgets, payments are typically lower than finance payments, and the car is covered by a warranty the whole time. However, if you have bad credit, you likely won't be able to qualify for those awesome lease deals you see and hear in advertisements.
If you're trying to lease a car with poor credit, you can expect to only qualify for a lower program tier – if you're able to in the first place. This limits the vehicles you'll be allowed to lease and makes it more expensive. You'll likely get a higher interest rate (called a “money factor” in leasing) as well, and may need to pay a security deposit (or multiple security deposits) up front, in addition to needing the first month's payment and typical fees.
Also, you shouldn't confuse a lease-to-own financing program with a traditional new car lease. While dealers that offer this include "lease" in the name, this type of financing results in you owning the car when you complete the payment schedule.
Lease-to-own programs, sometimes called rent-to-own financing, are similar to buy here pay here loans. Dealers that offer it typically don't use third-party lenders, so they won't check your credit. While this makes it easier for bad credit buyers to get approved, it also means the dealer may not report your payments to the credit bureaus so the loan won't help you improve your credit.
While it's typically hard to get approved to lease a car with bad credit, an alternative is to try to get a subprime auto loan through a licensed dealership. This is easier to qualify for than a lease, and you can get the car you need while also getting the chance to improve your credit.
Getting approved for a car loan as a first-time buyer without a cosigner can be difficult, especially if you have a limited or nonexistent credit history. As a first-time car buyer, it's important you plan ahead and do some research. What one lender is willing to approve you for can be different from the next. To improve your chances, make sure you do these three things:
If you have little to no credit, you may find it difficult to get approved for financing on your own. If you're worried about being turned down because of your credit or lack thereof, consider getting a cosigner. As a last resort option if you're unable to find a cosigner, a buy here pay here lot could help you get a car fast.
Absolutely! Sometimes, bad credit car buyers are even required to have a cosigner on their loan. Even if you don't need a cosigner, having a close friend or family member with good credit cosign may give you the boost you need to get the best rates and terms available to you.
When a cosigner is used on your loan, they have to meet similar qualifications that you do with the lender. So, if you have a cosigner in mind with great credit, but no job, they wouldn't qualify. Typically, subprime lenders who issue bad credit auto loans need both you and your cosigner to meet basic requirements involving income, employment, and credit.
Though requirements vary by lender and individual situation, you'll usually each need to make $1,500 to $2,000 in pre-tax monthly income, from a single source of taxable income. The reason your cosigner has to meet these standards is that, by putting their credit on the line for you, they're also agreeing to make payments in the event you're unable or unwilling to do so.
This also means that their credit is impacted just as much as yours, both for better and for worse, depending on how the loan is handled. You should know, too, that even though a cosigner can be held responsible for any missed payments, they have no ownership over the vehicle. So, it's a good idea to select your cosigner carefully and make sure they're fully aware of what they're getting into by helping you get a loan.
We recommend that you try everything you can to get approved without a cosigner first. It could be that you simply aren't working with the right dealer or lender. Auto Credit Express connects car buyers to local dealerships that are signed up with lenders that are experts in helping borrowers with bad credit, no credit, and other credit issues, so we may be able to help you find auto financing without a cosigner.
Some lenders ask borrowers with bad credit or no credit to get a cosigner before they're willing to approve their loan. If you need a cosigner to boost your credit for a car loan, there are two main requirements they must meet:
These requirements give the lender the confidence needed to approve your loan. A cosigner signs the loan contract alongside you – the primary borrower – which means they're legally bound to it. These measures confirm that the cosigner can meet the obligations of the loan in the event you don't.
Keep in mind that both the cosigner and primary borrower have to meet the income and debt to income ratio requirements individually. The incomes of the two can only be combined to meet the income requirements when the primary borrower and cosigner are spouses.
You can still get approved to finance car after a repossession, but it'll typically take some time. Bad credit lenders look to see that at least a year has passed since the repossession took place before they consider financing borrowers. If the repossession was included in a bankruptcy, then you usually don't have to wait a year and may be able to get a car loan when the bankruptcy has been discharged.
Getting your vehicle repossessed can be stressful, and many of us rely on a car to get to and from places such as work or school. If you know you can't wait a year for a vehicle, you can see if a lender will accept a large down payment and work with you. If you can come up with a down payment close to 20 percent, some subprime lenders may consider looking past the repo. But because this is highly unlikely, it's best to wait and improve your credit before applying for a car loan. The more time that's passed since your repo, the better your chances of getting approved can be.
In a last resort attempt, you can visit a buy here pay here dealership. These dealers won't run your credit, and use your income to see what you qualify for. Note that these vehicles are generally older, but, if you need a car fast, these in-house dealers could be a good temporary fix.
Whether or not you're able to get a car loan during bankruptcy depends largely on what type of bankruptcy you're in, and how successfully you complete it. There are two types of bankruptcy that you can find yourself in: a Chapter 7, a liquidation bankruptcy, or a Chapter 13, a repayment bankruptcy.
A Chapter 7 bankruptcy is a relatively short process that usually lasts only three to six months. It involves the sale of your personal assets, and the use of those profits to pay your debts. Though you can technically apply for a car loan after the “341” meeting of creditors has taken place, most subprime lenders won't approve an auto loan while you're in an open Chapter 7. However, it's quite common to get a car loan once your bankruptcy is completed, as long as you go to the right lender.
Conversely, a Chapter 13 bankruptcy is a long process that takes either three or five years to complete where you're responsible for the repayment of your debts over that time. Because of the length of time it takes, it's much more likely you could need another vehicle during your Chapter 13. In order to achieve this, you'll need your trustee to file a “motion to incur debt” with the court.
For this process, you'll need to find a dealer that works with people in bankruptcy, and get a sample buyer's order and financing statement to bring to your trustee. This paperwork needs to be very specific about your potential loan and include your down payment amount, the total cost of financing, your monthly payment, loan term, interest rate, and vehicle information. The dealer must also include “or similar” with the vehicle information, otherwise you'll have to start from scratch if the vehicle you had in mind sold while you were waiting for a decision from the court.
As with after a Chapter 7, it's possible to get financing during or after a Chapter 13 bankruptcy as long as you're working with the proper lender. Because bankruptcy will bring down your credit score, this typically means getting financed through a subprime lender. These lenders only work through special finance dealerships, so you can't get a direct loan from them. Here at Auto Credit Express, we work with a coast-to-coast network of these dealers, and we want to help you get started on the path toward your next vehicle today.
Please note that it's important to see your bankruptcy through to a successful completion, which will get you a discharge from the court. If you don't, it results in a dismissal, which makes it virtually impossible to obtain financing through a traditional or subprime lender.
The process of applying for a bad credit auto loan is slightly different than with a traditional car loan, and this starts with the lenders that are willing to finance you.
Most banks, credit unions, and other lenders aren't willing to work with car buyers with poor credit because they have strict credit score requirements. To cover this gap in lending, some lenders offer bad credit auto loans. While these come with higher than average interest rates, they give car buyers a chance to get the vehicle they need and to improve their credit with timely payments.
Almost all subprime lenders are indirect lenders that work through car dealerships, meaning you can't approach one on your own. Instead, you need to find and apply with a special finance dealership that's signed up with these lenders.
Typically, the process of applying for a bad credit auto loan works this way: you sit down and speak to somebody in the finance department at one of these dealerships to discuss your situation and fill out an application. The dealer will send it along to a lender (sometimes more than one) that fits your profile for a decision.
If a lender approves you, they'll send back what's known as a payment call that sets the terms of the loan, including the interest rate and maximum monthly payment. Based on these terms, you can choose from the vehicles in the dealership's inventory that you qualify for. Once you've checked them out, taken them for a test drive, and picked the one you want, you can move forward with the car buying process.
Why, right here, right now, of course! Here at Auto Credit Express, we take pride in providing consumers with the means to better their lives and improve their credit through realistic opportunities for auto financing. Our nationwide network of special finance dealers work with the subprime lenders necessary to help people who have bad credit, no credit, bankruptcy, or even a past repossession. We can help put you on the path toward a dealer near you today. All you have to do is fill out our free, no-obligation auto loan request form online to get started.
For close to 20 years, Auto Credit Express has been a leader in the bad credit auto loan industry, and we're excited to pass our knowledge and expertise on to you through our blog and other resources. Our blog is a great source of information and advice, written with the express purpose of helping you, our consumer, get the insight you need to take the next step toward getting the car loan you need – even if your credit situation isn't the best. Auto Credit Express employs full-time writers with car dealership experience, and we pride ourselves on making the bad credit car buying process as clear and straightforward as possible. Catch up with our blog or contact us with any questions today.