Having bad credit can make it difficult to get approved by traditional auto lenders. Thankfully, there are dealerships with special finance departments that can help borrowers with bad credit get into their next car loan.
Dealerships and Bad Credit Auto Lenders
There are two types of auto lenders: direct and indirect. Direct lenders, such as banks and credit unions, can be hesitant to approve borrowers with bad credit. These lenders typically only approve those with good credit scores. Borrowers can apply directly either online or in person at their credit union and bank, get pre-approved for a loan, shop like a cash buyer, then take delivery of a car.
Indirect lenders, on the other hand, work through dealerships, and the dealer acts as an agent of the lender. You fill out a credit application at the dealership, and they can send that application to a bank, captive lender, or another finance company. You work with the dealer’s finance department, sign all the loan documents there, and then take delivery. However, many indirect lenders are also unlikely to approve borrowers with tarnished credit.
But you’re not out of luck.
Thankfully, there are indirect loans for bad credit borrowers called subprime financing. Subprime lenders work with credit-challenged borrowers through dealerships that have special finance departments.
These bad credit lenders evaluate your ability to repay the loan and consider your credit score as well as other factors. Using your income, work history, residence history, and credit history and score, lenders determine your eligibility for a bad credit auto loan.
If you meet their requirements, subprime lenders move forward in creating a payment call. This is sent to the dealer, and it states your maximum monthly payment and the down payment required, among other loan terms. From there, you choose a vehicle from the dealership’s inventory that fits within that payment call and your budget.
Not all dealers have special finance departments, but once you locate one and you meet the requirements of a lender, you could be well on your way to getting your next car loan.
Requirements for Bad Credit Auto Loans
Putting together the required documents for a bad credit auto loan isn’t all that difficult if you know where to start. Many of the things subprime lenders need are most likely available already.
Here are commonly requested items from bad credit lenders:
- Valid driver’s license – Can’t be expired, revoked, or suspended. Must also have your current address.
- Down payment – Subprime lenders typically require a down payment of at least $1,000 or 10% of the vehicle’s selling price. A trade-in with equity can help meet this requirement.
- Proof of income – Proven with computer-generated check stubs that show year-to-date income. A gross minimum monthly income of $1,500 to $2,000 is needed for approval consideration.
- Proof of phone – A working contract cell or landline phone is required (no pre-paid phones). Proven with a recent bill in your name.
- Proof of residence – Proven with a recent utility bill or bank statement in your name with your current address listed.
- Personal references – Bad credit lenders typically require a list of around five to eight personal references, which can be family members, coworkers, or friends. These can’t be people that share your current home address.
Every lender is going to have varying rules, and your personal situation may require you to bring in additional items. For example, if you have a secondary source of income that can help bring your debt to income ratio down, bring documents that prove that income will last for the duration of the car loan.
Most bad credit borrowers find that meeting the down payment requirement is the most difficult task to accomplish. However, during tax season you may be able to use your hard-earned refund to help meet that lump sum requirement. And keep in mind, if you have a vehicle with equity, you can put it toward your down payment, as well.
Taking your time gathering items and having a plan for a down payment can help save you multiple trips to a dealership, as well as take the stress off.
Finding a Bad Credit Lender
Coming up with the required items for a subprime lender is half the battle – the other half is finding a dealer with a special finance department that has lenders that can work with your unique situation. That’s where we come in.
At The Car Connection, we’ve created a nationwide network of dealerships with special finance options for bad credit borrowers. We want to help get you connected to a dealer in your area by having you complete our free auto loan request form. It's secure and only takes a few minutes, and the best part: you can fill it out from the comfort of your own home. There’s never an obligation to buy anything, so let’s get started!