Your credit score changes all the time, and it isn’t going to improve overnight. It takes time to build a solid credit score and history. If you have bad credit and are looking to take out a car loan, the good news is you’re not immediately disqualified from getting financed. You just need to work with someone who specializes in auto loans for people with bad credit: a subprime lender.
Bad Credit Auto Loan Requirements
Special finance dealerships have subprime lenders that specialize in financing consumers with credit challenges such as no credit, bad credit, and even bankruptcy. In order to qualify for a subprime auto loan, you need to bring in additional documents that prove you meet their typical requirements:
- Income – Most subprime lenders require a minimum income of $1,500 to $2,000 a month before taxes. You need to prove you meet the income requirement by bringing in a copy of your most recent computer-generated pay stub showing year-to-date earnings, or recent tax returns if you’re self-employed.
- Residency – Lenders also want to make sure the address you list on the application is where you live. A recent utility bill in your name at the address listed on the application works to prove your residency.
- Identity – A valid driver’s license proves your identity.
- Phone – Lenders want to make sure they can contact you. You can bring in a recent phone bill from a national carrier, in your name, at the address listed on the application. Prepaid phones aren’t accepted.
- Down payment – You can’t get around the down payment requirement if you have poor credit. Although the amount required varies, most subprime lenders ask for a minimum of $1,000 or 10 percent of the vehicle’s selling price, whichever is less.
- References – When you meet with the finance manager, they’re going to ask you for a list of personal references. You typically need anywhere from six to eight, complete with names, phone numbers, and addresses. These can be friends, co-workers, and/or family members not living at your address.
- Trade-in information – If you plan on trading in your old car, make sure you have the title to give to the dealer (unless your state is a title holding state).
Building Your Credit to Qualify for an Auto Loan
If you’re looking to build or rebuild your credit, know that it’s going to take some time before you have good credit – especially if you’re starting from the bottom. If you want some advice on how to get your credit up and running, consider these five things:
- Become an authorized user on someone’s credit card – Authorized users get the benefit of having their credit score increase based on the good credit habits of the account holder.
- Have a cosigner ready – A cosigner can be just what you need to get approved for a car loan, especially if you have bad credit or have never financed a vehicle.
- Apply for a secured credit card – Secured credit cards act like unsecured credit cards, but your credit limit is based on the amount of money you deposit in a separate savings account.
- Apply for a credit-builder loan – Credit-builder loans are a type of loan where you make monthly payments into an account held by a lender. Your on-time payments help build your credit and improve your credit score, as both the loan and payments are reported to the credit bureaus. When completed, the loan is listed as paid in full, and the lender issues a check to you for the loan amount, including interest.
- Continue making payments on time – Payment history is the biggest factor in determining your FICO score. As long as you pay your bills on time each month, you should see your credit score improve.
Ready to Start Financing?
Shopping for a new vehicle and getting a car loan can be exciting and stressful all at once. The secret to qualifying for an auto loan when you have bad credit is to find a subprime lender to work with. The hard part is finding a dealership that’s signed up with these subprime lenders. But have no fear, The Car Connection is here.
We're teamed up with a nationwide network of bad credit car dealers. Take a quick moment to get connected to one of our dealerships by filling out our car loan request form today.