Is a Bad Credit Auto Loan Right for You?

Do you know whether or not you need a bad credit car loan? A poor credit score isn't the only reason you might want to apply for one. Even if your credit is OK, you might be surprised by the things that leave you lacking when it comes to getting an auto loan.

Why Look Into a Bad Credit Car Loan?

It seems like a simple scenario – if you have a bad credit score, you apply for a bad credit car loan. The lenders that can help credit-challenged consumers, called subprime lenders, can actually work with borrowers in many situations, not just those with a low credit score.

Here are a few scenarios where it makes sense to go for a subprime auto loan:

  • Is a Bad Credit Auto Loan Right for You?Low credit score – A low credit score can make it more difficult to qualify for a car loan with a traditional lender such as a bank, credit union, or some captive lenders. Subprime lenders rely on more factors than just credit score for an approval.
  • Situational bad credit – Even if you're normally on the sunny side of things credit-wise, sometimes, unexpected things like job loss or illness can take a toll. In situations where you're getting back on your feet, a subprime lender may be able to get you the auto loan you need.
  • Lack of credit history – Even if you have a credit score above 660, some lenders could turn you away if there isn't much history to back it up. If you're new to the world of credit, a subprime car loan may help get you started on the right path.
  • Recent bankruptcy – Even though it's typically fairly common to be eligible for more credit after a bankruptcy discharge, your credit score still takes a hit. Subprime auto lenders are usually able to work with people after most bankruptcy situations, and sometimes even during bankruptcy.
  • Past repossession – The impact of a repo on your credit diminishes over time, but you may still need to start with a subprime lender if you hope to get into a car loan after a repossession.

These are a few of the most common situations that borrowers who need a bad credit auto loan may find themselves in. If you fit into any of them, the good news is that a subprime car loan is a great first step on the road back toward better credit. Credit repair is a big benefit when it comes to preparing you for future loans and credit cards.

The Benefits of a Bad Credit Auto Loan

When you get a bad credit auto loan, it has more benefits than just getting you the vehicle you need. In fact, taking on a car loan is a great way to build your credit! Since auto loans are installment loans that you pay on for a long time, they give you a good opportunity to build a solid payment history.

Payment history is the largest factor that makes up your credit score. There are five factors that each make up a percentage of your credit score: payment history, amounts owed, length of credit history, credit mix, and new credit. The way you handle your credit impacts each of these factors, and lenders can see this when they look at your credit reports.

Bad credit lenders look at your credit score and reports to help them decide if they should extend you a car loan. However, since they know that you're more than a credit score, they also take into account your ability, stability, and willingness to take on an auto loan. To do this, they require you to provide proof of income, employment, and residency. You're also required to provide a down payment with a bad credit car loan.

You can read about the full requirements for a subprime auto loan here.

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Taking the First Step Toward a Car Loan

In order to know if a bad credit car loan is the right move for you, you should find out your credit situation. Taking this as a first step makes it easier to determine where to go next. It's a good idea to keep up with your credit reports and score on a regular basis, not just when you need new credit. Staying on top of your credit makes it easier to spot changes and catch mistakes early that could be dragging down your credit score.

Additionally, when you know where you stand going into an auto loan, it's easier to research your options and negotiate at the dealership. You should never let the dealer or lender determine your credit for you. If you don't know where you stand, you can't know whether or not you're getting a good deal.

To stay up to date on your credit situation, you can view your credit reports for free once a week by visiting www.annualcreditreport.com. Free weekly reports are available until April 2021. This changed in response to the coronavirus pandemic, to help people stay on top of the situations in a changing economic landscape. Normally, you're only able to view a free copy of your credit reports from each of the three national credit bureaus once every 12 months.

Ready to Make a Dream Come True?

If you need a vehicle, but have been spinning your wheel on where to go for your next car loan, we want to help you get on the right path. At The Car Connection, we match consumers in many unique credit situations with special finance dealerships that have the lenders you're looking for.

When you're ready to stop dreaming about your next vehicle and get behind the wheel, simply fill out our fast, free, and zero-obligation auto loan request form. We'll get right to work finding a local dealer to connect with you!


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