Being prepared and looking for the right lender is key in getting approved for a car loan with bad credit. Getting the green light isn’t impossible. In fact, many borrowers start off with less than perfect credit scores, due to a lack of credit history. Whether you’re a new borrower or you’ve hit some bad-credit bumps in the road, you’ve got auto loan options to explore.
Working Toward a Car Loan Approval
Having poor credit isn’t the end of the world because you can always improve it. Car loans can help repair your credit, too, but getting into one in the first place is going to take some work and strategy.
As a bad credit borrower, you can take these steps to prepare for an auto loan:
- Look at your credit score and credit reports before you apply. You should know what lenders are going to see when you apply for vehicle financing. You can also make sure your credit reports are right, and aren’t listing incorrect things that could be lowering your credit score.
- Take time to find the right lender for your situation. You don't have to waste time and energy with unnecessary turn downs if you work with the right lender for your situation. If your credit is in poor shape, seek out a car loan from a subprime lender.
- Examine your budget and plan accordingly. Make sure that you’re not looking for vehicles that are completely out of your price range, or you could end up overextending yourself. And don’t forget about the cost of full-coverage auto insurance in your budget!
- Start saving for a down payment to help with your approval odds. When you have bad credit, having a down payment is almost always a requirement. It can also lower your monthly payment, so it’s a good idea to save as much as you can.
- Consider used cars instead of new ones. Used vehicles are usually cheaper, and are typically a better route for poor credit borrowers. You’re likely to have more cars available for your credit score range when you consider pre-owned options.
- Gather documents that lenders are likely to ask for. When you apply for new credit, lenders are going to want to know how you can pay for it. They usually ask for items like check stubs, utility bills, bank statements, your driver’s license, a phone bill, and maybe more. Start getting your ducks in a row now so you aren’t rushed when you apply for auto financing.
These are all important steps for preparing yourself for your next, or first, car loan. However, finding the right lender for your situation could prove challenging, but we can also help you get started in the right direction.
Bad Credit Auto Loans
Another word for bad credit is “subprime.” There are subprime lenders that work specifically with borrowers who have poor credit scores. You never actually meet a subprime lender, as they’re a third-party. Instead, you apply with the dealer’s special finance manager on the lender’s behalf.
As we covered earlier, expect to provide proof of residency, provide a list of personal references, prove your income with computer-generated check stubs, and have a working phone.
A down payment is also required with a subprime lender. You can typically expect to need at least $1,000 or 10% of the vehicle’s selling price, but you can always put down more, or use a trade-in to help meet the minimum down payment amount.
Once you find and apply with a dealership that’s signed up subprime lenders, if you’re approved for auto financing, you work with the dealer to choose a car. Your vehicle choices are dictated by your personal situation, such as how much disposable income you have each month and how much money you can put down.
If you meet all the subprime lender’s stipulations and move forward with choosing a car, you can start down the road of credit repair. Subprime auto loans are reported to the major credit bureaus, which means that you can improve your credit score with each on-time payment.
With a better credit score, you increase your chances of getting approved for future car loans and other types of new credit. A higher credit score can mean qualifying for special deals or lower interest rates, which can save you money when you need to borrow from a lender in the future.
Finding the Lender for Your Credit Score
Although we’ve given you tips and direction on where you can look for auto financing with a lower credit score, you still may be wondering where to start looking for a lender for your situation. We want to offer more help with that, too.
Here at The Car Connection, we’ve got dealership connections all over the country, and we know which ones are signed up with subprime lenders. Fill out our free car loan request form, and we’ll look for a dealer in your area with bad credit lending options.