If you’re on a tight budget and have bad credit, how low can you go when it comes to car financing? Generally, lenders don’t let you finance less than $5,000, but some direct lenders' caps are even higher. The good news is you can make the overall cost of your loan more affordable without worrying about the financing limit.
Vehicle Requirements for Subprime Lenders
Let’s start by understanding subprime lender vehicle requirements, and why they’re needed. Subprime lenders work with credit-challenged consumers and specialize in bad credit auto loans. In order to extend financing, a potential buyer must choose a car that meets the lender’s requirements.
Unfortunately, you can’t just pick out any vehicle you want and expect to get approved. Specifics vary, but most subprime lenders won’t finance an auto loan under $5,000.
Keep in mind that this is the amount financed, not the car’s selling price. In fact, you could finance a vehicle with a selling price that’s under $5,000, as long as the total amount being financed is at or above $5,000.
In addition, most subprime lenders aren’t going to finance a car that’s over 10 years old or that has over 100,000 miles on the odometer.
What’s the purpose of having these vehicle requirements? They’re designed so that you pick a car that’s dependable that lasts long enough to help you build credit. You don’t want a vehicle that needs extensive repairs, and lenders don’t want to finance a car that’s expected to break down over the course of the loan.
You could try to get a small private loan for an inexpensive vehicle, but we recommend you don’t try this since these loans come with high interest rates.
How to Lower the Amount Needed to Finance
Now that you know what subprime lenders require when it comes to car selection, how exactly do you lower the total amount needed to finance if you’re on a tight budget? You have some options to choose from, but the two you should consider first are:
- Making a larger down payment – You usually need a down payment with a bad credit auto loan, so why not put down as much as you can? You’d be fine meeting the usual down payment requirement of $1,000 or 10% of the vehicle’s selling price, whichever is less, but bigger is better if you have poor credit. You can lower your monthly payment, as well as the total interest charges – which, with a high interest rate, could save you thousands on the overall cost of the loan.
- Adding a cosigner or co-borrower – Not all lenders require a cosigner or co-borrower on a loan, but having one can help reduce the overall cost if you’re trying to save money. Co-borrowers are usually a spouse, and they co-own the car with you – meaning their name is on the title. You can combine incomes with a co-borrower, and even qualify for better loan terms if their credit is better than yours. Cosigners are a little different. Cosigners don’t own the vehicle but are responsible for the loan in the event you can’t pay. You can’t combine incomes with a cosigner, but adding their good credit score could qualify you for a better, lower interest rate.
If you find that you can’t lower the overall cost of the loan, you can take out a loan now, improve your credit over time, and choose to refinance it for a better rate later on.
The Bottom Line
The lowest amount you can finance a car for may be $5,000 if you have bad credit, but there are ways you can make the overall cost of any loan more affordable. It may take some time and planning, but it’s worth it if you want to finance the lowest amount possible.
When you’re ready to get the car buying process started, we can help you find a dealer. At The Car Connection, we work with dealerships all around the country that specialize in helping buyers with imperfect credit.
We'll work to match you with a dealer in your area after you submit our online auto loan request form. Get started today!