When you have bad credit, it's usually more difficult to qualify for an instant auto loan approval, but that doesn't mean you're out of luck when it comes to vehicle financing. We have a few tips to help you qualify for an instant approval, and some alternatives to explore if you have questionable credit.
Instant Approval Auto Loans
Instant approval car loans offer you a decision in hours – not days like some loans. Also called pre-approval loans, these essentially turn a bad credit borrower into a cash buyer.
Normally, subprime (bad credit) borrowers don't have a lot of room to negotiate with lenders. However, thanks to a pre-approval, you have more wiggle room and all you have to be concerned with is the out-the-door price of the vehicle you're buying.
These loans can be difficult to get as a bad credit borrower, though, because not all direct lenders – who provide these loans – are willing to work with lower credit scores. Lender requirements vary, but most direct lenders don't approve borrowers with a poor credit score (generally 660 or below).
Because this stipulation can be difficult to overcome for a bad credit borrower, it's best to look for a lender at a financial institution where you're a member in good standing, such as your personal credit union or bank.
If you get a pre-approval from your financial institution, you're typically given a check to take with you that can be used to purchase any car that fits within the budget, and you're responsible for repaying your bank or credit union.
Tips for Improving Your Chances at an Instant Approval
Since instant approval auto loans can be difficult to qualify for with poor credit, you can lend yourself a helping hand by using these tips to improve your odds of getting approved:
- Cosigner – A cosigner is someone with good credit that agrees to let you "borrow" their credit score in order to gain a loan approval. Cosigners agree to repay the loan if you're unable to. Whatever happens with the car loan impacts both your credit scores – good or bad. Even though a cosigner is helping you qualify for an instant approval, they're not listed on the vehicle title.
- Co-borrower – With a co-borrower, you add their income to your own in order to meet a direct lender's requirements. Since you can't just combine incomes with anyone, a co-borrower is typically a spouse or life partner. Co-borrowers are known as joint applicants, and both of your names go on the car’s title.
- Larger down payment – If you're a bad credit borrower, you're likely to be required to provide a down payment on any type of loan you qualify for, even a direct loan. Sometimes, borrowing less can be the key to an instant approval, so the more of your own money you're able to invest as a down payment, the better your chances of getting pre-approved can be.
- Choose a less expensive vehicle – In order to be approved for an instant auto loan, the lender typically requires you to provide information, such as the car’s make, model, and age. In some cases, if a lender is on the fence about an auto loan approval, you may be able to lessen their hesitation by financing a different vehicle. The specifics that impact this largely depend on what you're looking for and the lender’s stipulations.
So, if you don't qualify for an instant approval, are you just out of luck? Nope; if these tips still can't help you gain the instant approval you're seeking, there are a few alternatives you can try.
Buy Here Pay Here Dealers
If an instant approval is your goal, chances are you need a car fast. If that's the case and a direct loan isn't in the cards, a vehicle loan from a buy here pay here (BHPH) lot may be the solution you need.
These dealerships only sell used cars, but they specialize in in-house financing, which means the dealer is also a lender. This makes them a good choice if you need a loan quickly and have bad credit, as many don't even check your credit at all because they don't rely on third-party lenders for auto loan approvals.
Typically, they require a large down payment, around 20% of a car's selling price, and proof that you make enough money to keep up with loan payments (sometimes even requiring weekly or bi-weekly payments).
However, BHPH dealers aren't the right choice for every situation. Even though they normally don't initially check credit, many BHPH lots don't report your payments to any of the major national credit bureaus, which means your loan doesn't improve your credit score. Additionally, they're likely to report late or missed payments, which could bring down your credit score even further.
Subprime Car Loans
When you have poor credit, you're most likely to get approved for a loan through a special finance dealership that's signed up with subprime lenders. These lenders rely on factors other than your credit score to approve you for the loan you need. With the bad credit car buying process, you work with a third-party indirect lender through a special finance dealer.
These lenders look beyond credit scores to get bad credit borrowers the vehicles they need. Instead of credit score alone, subprime lenders check to see if you have the ability, stability, and willingness to take on an auto loan.
To prove this, you're generally required to provide check stubs, utility bills and/or bank statements, a contract phone bill, a list of personal references, a valid driver's license, and a down payment.
When you aren't able to qualify for an instant approval, you're limited to the cars carried by the dealership which fit within the budget you're given, and can't go just anywhere to get a vehicle of your choice. However, if you're going through the right dealer, you may be surprised by the options you have.
Ready to Get Started?
Just because an instant approval auto loan is probably not going to happen if you have bad credit, you're not out of luck on financing the car you need. Since subprime lenders aren't always easy to find when you don't know where to look, The Car Connection wants to help.
We work with a nationwide network of special finance dealerships that are signed up with subprime lenders. If you're ready to find a lender for your credit situation, simply fill out our fast, easy, and free auto loan request form, and we'll get to work connecting you to a dealer in your area!