Getting a car loan with bad credit is far from impossible, and there is no minimum credit score requirement to obtain financing – you just need to find the right lender for your particular situation. Not all lenders work with borrowers with credit distress, but those who do may not be as out of reach as you might imagine!
Preparation is half the battle …
Almost as important as working with the right lender is how you prepare for your next car loan. It’s not enough to think that you can want a certain type of vehicle, find it in a parking lot, and put in enough money to drive it home. There are a lot more steps to take, especially if your credit score isn’t the best.
Get your credit score
Even though there is no minimum credit score to qualify for a car loan, different lenders work with different borrowers, and it’s a good idea to know where you stand in terms of credit when you are starting out. Right now, you can check your credit reports from the three national credit bureaus – TransUnion, Experian, Equifax – once a week for free. Just visit www.annualcreditreport.com to take advantage of this access until April 2022.
Once you know where your credit score is and what’s on your credit reports, you open the door to researching your options and can see where you have the opportunity to improve your credit situation. . For example, knowing your credit score, you can research the average interest rates for people in similar positions. And, seeing where your credit reports are missing can help you know what steps to take to repair your credit.
Our dealer network, which works with bad credit borrowers, earns approximately 13.6% average consumer interest. It might sound high, but keep in mind that credit score is the primary driver of interest rates, so the better your credit score, the better your chances of getting a lower interest rate.
Prepare your budget
Your budget is more than your spending limit on a vehicle. Lenders make several calculations when it comes to bad credit borrowers. Believe it or not, lenders don’t want you to go bankrupt just trying to pay off a car.
For this reason, they determine your debt-to-income (DTI) and payment-to-income (PTI) ratios. These tell a lender how much of your monthly pre-tax income is being used by your existing bills, and how much can be for your combined car loan and insurance. You can calculate them yourself, then set your estimated maximum budget with our auto credit estimator.
Remember that the amount of car loan you are eligible for depends on many factors and you must be approved for a loan before choosing a vehicle if you are trying to get a car loan with bad credit.
Gather your papers
To get the most out of your auto loan experience, it pays to have your ducks in a row before setting foot in a dealership. Part of the reason that lenders can work with you through special finance dealers is that they look beyond your credit score to assess your situation on many levels. They verify that you have the capacity, stability and willingness to take out a car loan.
To prove it, bad credit lenders usually require that you provide:
- Proof of income with a recent computer generated check stub showing cumulative income of at least $ 1,500 to $ 2,500 per month from a single source.
- Proof of residence with a utility bill or bank statement in your name, to the address provided on your application.
- Proof of a working landline or cell phone, satisfied with a bill in your name. Prepaid phones are not eligible.
- Five to eight personal references with full contact details.
- A valid driver’s license that is not revoked, expired or suspended.
- A down payment of at least $ 1,000 or 10% of the selling price of a vehicle is also generally required.
Now that you know what to expect from subprime lenders, it’s time to make sure that you are looking for an auto loan with the right lender for your situation.
Find the right fit
As a borrower with poor credit, a subprime lender at a special financing dealership is probably a good way for you to get the auto loan you are looking for. However, this is far from your only option.
Lenders at risk are good because they rate you on more than your credit. However, they still check your credit. They can be the difference between bad credit due to mismanaging your finances and bad credit due to something beyond your control. But they still can’t give everyone a loan in all cases.
If you’ve been turned down by a subprime lender, it might be time to consider an option that may even be disregarding your credit. Internal funders, also known as buy here, pay here resellers, are both resellers and lenders. Often times, these car lots do not draw on your credit to determine if you qualify for financing. Typically, they rely on your proof of income and how much down payment you are willing to make to approve you.
Be aware, however, that car lots that don’t use your credit to base your loan may not report your payments on time to the credit bureaus, so your credit score may not improve over time with this. ready.
If your credit isn’t the best, but there’s nothing specific that stands in the way of a car loan, you may be able to be pre-qualified for financing. Pre-approval usually comes from a direct lender like a bank, credit union, or online lender. Direct loans often have a lower interest rate than other loans for bad credit borrowers and can essentially turn you into a cash buyer at a dealership if you get pre-approved.
You still need to meet the lender’s loan requirements, and if your credit score is not at its best, you may have better luck online or through a credit union that you are a member of. for a long time.
… Working with the right lender is the other half!
Here’s the problem: Having good credit and getting a car loan don’t go hand in hand! Sure, a higher credit score can open doors when it comes to getting a great interest rate and financing a wider selection of vehicles, but everyone has to start somewhere.
When you have bad credit, it often means working with a subprime lender. Many of them are listed with special finance dealers across the country, but it can be difficult to choose them from a crowd. Rather than doing it on your own, let us plant the seeds for your next loan by finding a dealer in your area who has signed up with the lenders you need.
Auto Express Credit can help save you time and hassle by pairing up with a Specialized Financing Broker. The process is quick and free, so get started now by filling out our auto loan application form.