Do you need a car loan? Do you know where to start? If you're new to the world of auto financing, you might not realize the range of options that exist when you need a car loan. Let's look at the possibilities available for auto lending when you have bad credit, or even no credit at all.
4 Ways to Get an Auto Loan
There are a number of ways a person can get a car loan, but not everyone qualifies for each option. Most auto financing approval depends on your credit score. But what if you don't have a credit score? Not to worry, there are options that cover that as well.
First, let's look at the possible ways you might get a car loan with bad credit:
- Direct lending – Direct lending is when you go to your bank or credit union to apply for an auto loan. Typically, you have to have good to excellent credit (credit scores from 670 to 850) to get approved for a direct loan.
- Indirect lending – These are lenders that only work through car dealerships. Subprime lenders are indirect lenders that only work with special finance dealers.
- Captive lenders – Captive lenders are a type of indirect lender that only offer loans through specific franchised dealerships, such as Honda Financial Services or Kia Motors Finance. Most auto manufacturers have captive lenders.
- Buy here pay here dealerships – These dealers are also lenders. Buy here pay here (BHPH) dealerships can be a good one-stop option for consumers who've been turned down for other types of loans, including subprime loans.
Though these are the most common types of lenders, not everyone can qualify for a loan with every kind of lender. If you're dealing with bad credit or you have a thin credit file, you probably need to work with a subprime lender or BHPH dealership.
Qualifying for a Bad Credit Car Loan
When you apply for a subprime loan, you're working with an indirect lender; there's no sitting down and hashing out loan terms face to face. Instead, you need to visit a special finance dealer where the finance manager works with the lender on your behalf. No matter which type of lender you apply with, there are certain requirements you have to meet.
Here's what you need to do:
- Be prepared – Even though not every lender requires the same documentation, or the same amount for a down payment, it's best to prepare ahead of time. Check your credit so you know what's on your credit reports and where your credit score stands. Prepare a budget so you're not tempted to finance more than you can afford. Research vehicles so you don't settle for a car that doesn't meet your needs.
- Gather your documents – Most subprime lenders require roughly the same items in order to qualify for an auto loan, though the specifics vary. Most ask you to provide the following: proof of income of at least $1,500 and $2,000 a month before taxes from a single job, proof of residence with a utility bill in your name, proof of a working landline or contract cell phone in your name, a list of five to eight personal references, and a valid driver's license. The exception here is BHPH dealerships – they typically require you to have enough available income to afford a vehicle, but aren't as strict with the source as other lenders.
- Provide a down payment – Most subprime lenders require a down payment of $1,000 or 10% of the car's selling price, whichever is less. BHPH dealers typically require larger down payments. There are several benefits to making the biggest down payment you can afford, including reducing the time your vehicle has negative equity. However, if you purchase an affordable car that holds its value, it's perfectly acceptable to make the minimum down payment, but you may want to have GAP insurance.
Finding What You're Looking For
When you're struggling with credit, or a lack of it, don't worry about this standing in your way if you need an auto loan. The keys to success are knowing where to go and being prepared for the bad credit car loan process. The more research you do, the better off you are.
When you're ready to start looking at vehicles that meet your needs, you can start here by visiting our new and used car sections. After that, instead of running all over town looking for the right dealer with the lenders you need, just fill out easy, no-obligation auto loan request form and let The Car Connection do the searching for you.
We work with a nationwide network of special finance dealerships that have lenders bad credit car buyers need. We want to connect you to a local dealer that can help. Don't hesitate any longer – get the process started today!