Getting approved by a traditional auto lender can be difficult if your credit is less than stellar. If you’re thinking about going through a dealership’s special finance department for your next car loan, there are still some requirements you need to meet.
Special Finance Car Dealerships
Today, there are more dealers with special finance departments than ever before. This is great news for bad credit borrowers who may not be able to get approved for an auto loan by traditional lenders because of their poor credit score.
Special finance departments in dealerships work with subprime lenders, or bad credit lenders. These lenders use more than credit scores to make their loan decisions. You submit your information to the lender through the special finance department, and from there, the subprime lender lets the dealer know the maximum monthly payment you qualify for.
The subprime lender does this by sending a payment call to the dealership, which outlines the maximum monthly payment, based on your credit. Then, you work with the dealer to find a vehicle that fits within the payment call’s parameters and take delivery.
Before the process can get started, you have to prove that you meet all the requirements for car loan approval. Most subprime lenders vary in their requirements, but they usually require documents to verify the information on your credit application.
Documents Required by Subprime Lenders
Since you're not working directly with the lender, you have to submit the documents that verify this information to the dealership you're working with, and they pass them on to the lender. We’ve put together a list of the basic items and documents many subprime lenders require to help gauge if you qualify for a bad credit auto loan. They include:
Income Requirements and Work History
To be approved for a subprime car loan, you’re likely to need a solid work history, and steady income. The minimum monthly income required is typically around $1,500 and $2,000 before taxes (gross). Only one source of income can be used to meet this requirement.
If you have additional sources of income, they can be used to lower your debt to income ratio, which is a ratio of all your monthly bills compared to how much you earn each month. Subprime lenders use this ratio to make sure you can afford an auto loan on top of your other financial commitments.
To prove your income, bring a recent computer-generated check stub that also lists your year-to-date income. Most bad credit lenders prefer that you’ve been employed at the same job for at least a year, and a consistent overall work history of at least three years with no large gaps between jobs.
Subprime lenders almost always require a down payment of at least $1,000, or 10% of the vehicle’s selling price – occasionally whichever is less. They often require a down payment to see that you’re committed to completing the loan.
Luckily, you don’t have to make the down payment just in cash, as you can use a car with equity as a trade-in to help meet this requirement. You can also combine the two.
While many borrowers in all credit situations struggle with coming up with a down payment for an auto loan, the more you put down, the more you save. This is because it reduces how much you’re financing, which means you pay less in interest charges. It also lowers your monthly payment.
Proof of Phone, Residence, and Identity
Bad credit lenders are going to need to be able to contact you, so they require that you have a working phone. This can easily be proven with a recent phone bill in your name, with your current address. A prepaid phone usually isn't accepted, so it needs to be a contract cell phone or landline phone.
Lenders also require proof of residency, which can be proven with a recent utility bill or bank statement in your name with your correct address listed. Usually, the longer you’ve lived in the same area, the better your chances of approval.
Along with your phone and residence, subprime lenders need to verify your identity. Your driver’s license can do the trick as long as it's valid. This means it can’t be expired, revoked, or suspended. A state-issued ID can also work. Just remember you can’t test drive any vehicles or drive anything off the lot without a driver’s license.
After you’ve submitted all the required documents and the subprime lender determines you’re able to take on a car loan, they’re likely to require a list of around five to eight personal references.
These references can be friends, family members, or coworkers – nearly anyone you know that you feel comfortable asking. Your list of personal references needs to include their complete contact information, including their name, home and work phone numbers, and addresses. Their only stipulation is that references can’t share your current home address.
Finding a Special Finance Dealership
Now that you know what you likely need when you visit a dealer’s special finance department, the next step is finding one. Instead of driving all over town or making multiple phone calls, let us handle that.
At The Car Connection, we’ve got the connections. We’re teamed up with dealerships that work alongside subprime lenders, and we connect bad credit borrowers to them for free. To get started, all it takes is filling out our secure auto loan request form. We’ll do the looking for you, and get you matched to a special finance dealer in your area.