Second Chance Auto Loans Made Simple

Second chance auto loans help buyers with past credit issues explore financing options. Learn how they work and what to consider before applying.

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What Are Second Chance Auto Loans?

Second chance car loans get their name because they are intended to give customers who have been turned down for traditional loans a higher chance of car loan approval. There are generally two options for bad credit borrowers when it comes to second chance financing: in-house financing and subprime loans.

Traditional lenders may turn you down with a poor credit score, but you might be able to get approved by a bad credit lender for a subprime car loan. If you choose to look for in-house financing, you'll be shopping with buy here pay here (BHPH) dealers or tote-the-note car lots.

Many borrowers with less than perfect credit finance through a BHPH. At these lots, the dealer is also the lender, and they provide in-house financing. This means the shopping and financing are done in the same place, and you may also have to make your car payments there, too.

Another option that may give you a higher chance of approval is going through a special finance dealership and working with a subprime lender. These lenders do take a look at your credit reports, but they also consider your income, residence stability, and willingness to make a down payment. At these dealers, the finance manager works on the subprime lender’s behalf.

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Who Qualifies for Second Chance Auto Financing?

Borrowers who have:

  • Low credit scores
  • Past repossessions
  • Recent bankruptcies
  • Difficult-to-prove incomes
  • Been rejected by traditional lenders

What to Know Before Getting a Second Chance Car Loan

When you visit a second chance auto financing dealership, you should come prepared with the documentation they need to see. The funding of the loan often hinges on this documentation. Typically, you'll need to provide:

Your most recent computer-generated check stub from your current employer, showing year-to-date income, as proof of income. Income must be a minimum of $1,500 to $2,500 a month before taxes from a single source.

A current utility bill in your name, at the address listed on your application, as proof of residence.

Proof of a working phone in your name so you can be contacted. A valid driver's license for proof of identity.

A list of five to eight personal references with names, addresses, and phone numbers. References cannot live with you.

The specifics vary by lender, so it's best to ask about what exactly you'll need before visiting the dealership.

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Is your gross monthly income at least $1,500 per month?

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How long have you lived at your current address?

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Are you 18 years of age or older?

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Provide a few more details to get started on your auto financing request.
Unfortunately, our dealers and lenders have a minimum age requirement of 18 years for their Financing programs.

How Does Second Chance Financing Work?

Second chance financing increases your chance at approval because lenders are ready to work with bad credit borrowers. They look at other factors than just your credit score to approve you for a loan, unlike traditional lenders. In many of these situations, you will need to provide the lender with proof that you have the ability, stability, and willingness to take on a car loan.

The chief benefit of a second chance loan is that you have a much higher chance of approval. Having a car is crucial for most people, and second chance financing can make that a reality. Additionally, second chance loans can help rebuild your credit, as payments are reported to credit bureaus in subprime lending situations. This can help raise your score over time and eventually help you qualify for refinancing at a better rate, assuming your payments are made on time.

Finding Second Chance Car Dealerships Near You

When you have poor credit, most traditional lenders aren't willing to take a chance on you. These lenders typically have strict minimum credit thresholds you have to meet, and they may automatically turn down your application if your credit score isn't high enough.

Second chance financing car dealerships, on the other hand, want to help you break the cycle of bad credit with a second chance loan. You can get an opportunity to get a loan you otherwise wouldn't be able to qualify for, and you can turn your credit situation around by making all of the payments on time.

Auto Credit Express can help you get connected to a second chance financing car dealership near you. We want to help people improve their lives by making opportunities for auto loans more realistic, even if your credit track record isn't spotless.

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FAQ's

Can I get a second chance loan with a repo on record?
A repossession on your credit report can be enough to stop you from qualifying for a traditional loan, but you may find that you can still finance through a second chance lender like a subprime lender or a buy-here-pay-here dealership. Typically, the longer ago your repo was, the better off you are when it comes to getting second chance financing.

Will applying for a second chance loan affect my credit score?
Yes, applying for a second chance loan, like any other loan, will impact your credit slightly. However, loan applications typically only ding your credit minimally, around 5 to 15 points. This is typically easy to recover from, and your score will naturally bounce back, assuming you pay your bills on time and in full.

Are interest rates higher for second chance auto loans?
Yes, you can expect higher interest rates on second chance auto loans. These loans, known as subprime loans or in-house loans, depending on where you're shopping, both tend to have rates that are significantly higher than the rates offered to borrowers with the best credit. However, with good habits and timely payments, you may be able to qualify for refinancing to get a lower interest rate down the line.

Is a cosigner required for a second chance auto loan?
In some cases, your lender may require a cosigner to help you get approved for financing, but it's typically not a requirement for all loans of this kind. A cosigner can help you get the loan you need by lending you their good credit score and promising to be a backup payer if you can't meet your obligations. This gives lenders the peace of mind they may be lacking when you're a bad credit borrower.

What if I’m denied a second chance car loan — what’s next?
If you're denied a second chance loan through a subprime lender, the next step is to try an in-house financing lender like a BHPH dealer. These dealers are the lenders, and often don't check your credit. If this solution doesn't pan out, the next thing to think about is building your credit score or cleaning up your credit reports, depending on why you're denied. Choosing a loan like a credit builder loan can be a good way to improve your credit score while saving money for your down payment.