Bad credit can make car buying a pain – but you've still got options to explore. If traditional auto lenders haven’t been able to resolve your no-car problem, we’ve got two alternative routes to check out.
Bad Credit Auto Loan Options
A bad credit score can lead to an auto loan denial with traditional lenders. Lending institutions such as credit unions, banks, and the captive lenders of automakers typically have higher credit score requirements that can knock you out of the running. But, if you work with lenders that specialize in bad credit car loans it could be your ticket to a vehicle.
Subprime Auto Loans
Subprime lenders are signed up with special finance dealerships. They’re third-party lenders, so you work with the dealership’s finance manager, not directly with the lender. In order to apply for financing, you typically have to meet lender requirements which include having a gross monthly income of around $1,500 to $2,500, a valid driver’s license, proof of residency, a working contract phone, and a list of personal references.
If you qualify, the lender notifies the finance manager of the maximum car payment, interest rate, and loan term you're approved for.
The dealer then shows you a selection of vehicles that fits within the parameters of the payment call, and you choose one that fits your needs from those. After you’ve chosen a car, the rest of the auto loan paperwork is completed and you take delivery. Subprime lenders also require a down payment – usually at least $1,000 or 10% of the vehicle’s selling price – so if you choose a pricey one, you’re likely to need more down.
A big benefit of going for a subprime car loan, besides the fact that they work with many tough credit situations, is that there’s the opportunity to repair your credit. Subprime car loans are reported to the national credit reporting agencies – TransUnion, Equifax, and Experian. This means you're likely to have your on-time payments reported on your credit. Every timely payment you make can improve your credit score, and possibly erase the need for subprime lending in the future.
For borrowers with credit that’s really worse for wear who can’t qualify for subprime lending, there’s still another route: in-house financing. This type of lending is done at buy here pay here (BHPH) dealerships. The dealer doesn’t need to wait for you to get an approval before financing a car for you, because they handle all the loans there, too.
In-house financing is often a go-to for borrowers with poor credit because a credit check may be skipped altogether. Many BHPH dealers don’t review your credit reports, so a poor credit score doesn’t get in the way of an auto loan approval. Even without a credit check, you still need to meet income requirements and prove you’ve got steady employment to successfully repay the loan. BHPH dealers also require a down payment, which could be up to 20% of the vehicle’s selling price.
These dealerships only sell used cars and may be more likely to assign higher than average interest rates because the credit check is skipped. Keep in mind that if the BHPH dealer doesn’t check your credit, it isn’t likely they’re going to report the auto loan if you’re approved either. This means on-time payments don’t improve your bad credit situation. Be sure to ask the dealer about their credit reporting practices if you’re looking to boost your credit from the car loan.
Where Do I Find These Lending Options?
In-house financing dealerships are rather plentiful across the country. They’re independent dealerships, so if you see “No credit? Bad credit? No problem!” advertised in their window, it’s very likely they use in-house financing and may skip the credit check.
Subprime lenders can be a little trickier to find, though, since franchised dealerships may not advertise all of their lending partners. But if you want to skip the search for a bad credit auto loan, The Car Connection is here to help!
We’ve already done the hard work of locating which dealers have bad credit lending options. Once you complete our free car loan request form, we’ll look for a dealership near you that’s able to assist with credit challenges. There’s never a cost or obligation to work with us, and our form is secure and takes only a few minutes to fill out. Let’s get to work!