There's more to getting an auto loan than credit. Even if your credit score isn't very high, don't count yourself out for vehicle financing. If you're not sure whether or not you need a bad credit car loan, checking your credit should still be your first step.
Credit Scores and Car Loans
Credit scores range from 300 to 850 on the FICO credit scoring model, which is the most common one used among auto lenders. The higher your credit score is, the easier it typically is to get approved for things like car loans, home mortgages, and credit cards.
However, everyone has to start somewhere, and sometimes situations that impact our credit are beyond control (looking at you, 2020). That's why there are lenders that work with people in many types of credit situations.
Credit scores are usually divided into groups, or tiers, and the tier you fall into could vary by lender. Even though ranges vary, this is the typical credit score breakdown according to the credit bureau Experian:
- Super prime: 781-850
- Prime: 661-780
- Nonprime: 601-660
- Subprime: 501-600
- Deep subprime: 300-500
The credit score ranges typically referred to as "bad credit" are the three categories with scores below 660. The lower the tier your credit score falls into, the more likely you are to need a special finance lender that can work with credit-challenged consumers.
Getting Your Credit Score and Reports
Since knowing where your credit stands is so important to the auto loan process, the three national credit bureaus, TransUnion, Experian, and Equifax, typically allow you to check your credit reports for free once every 12 months. However, due to many rapid changes in early 2020, you're now able to access your credit reports and score for free, one a week until April of 2021 by visiting www.annualcreditreport.com.
You can get your credit score in a number of different ways, such as through your credit card provider or an online source like our trusted partner. No matter how you get it, try to get your FICO credit score, as this is the one most lenders use.
It's not enough to just get your credit score and not pay attention to what's in your credit reports – especially if your credit score is 660 or below. The information in your credit reports combines to create your credit score, and the information can fall into five categories. Each category makes up a different percent of your score.
The five categories that make up your FICO credit score are:
- Payment history: 35%
- Amounts owed: 30%
- Length of credit history: 15%
- New credit: 10%
- Credit mix: 10%
As you can see, the most important part of your credit score comes from payment history. This is also one of the reasons a car loan can help you build credit, as it gives you the opportunity to establish a good payment history over several years, if you make your payments on time every month.
Getting a Bad Credit Car Loan
If you check your credit score and find that it isn't as high as you wish it were, don't fret. There are lenders available that work with people in many types of credit situations, including bad credit and no credit. These lenders are called subprime lenders, and they know that there's more to you than just a credit score.
Subprime lenders rely on additional factors to see if you can take on an auto loan. The factors they look for can help them determine your ability, stability, and willingness to follow through on a car loan.
Though the specifics can vary, subprime lenders typically look at your income, employment and residence stability, whether or not you have a working phone in your name, and whether or not you're willing to provide a down payment of at least $1,000 or 10% of a vehicle's selling price.
Finding a Special Finance Dealership
Working with a subprime lender may even qualify you for more car than you thought you'd be able to get, such as a certified pre-owned vehicle or an affordable new car.
However, since subprime lenders work through special finance dealerships, they can sometimes be hard to pick from the crowd. That's where The Car Connection comes in.
We work with a network of special finance dealers that spans the country, and we want to help you get connected to one for your next auto loan. These dealerships are signed up with special finance lenders. To see what we can do for you, simply fill out our fast and free car loan request form now.