When you need a bad credit auto loan, one thing you need to remember is that you have options. Gone are the days of your only option being going to the local buy here pay here (BHPH) dealership to avoid a credit check (though, that's still one option). Today, t are more choices for serious bad credit car buyers, but you still have to make sure you're going to a dealer that can help.
3 Types of Lending Options
Even though there are a number of options for getting a bad credit auto loan, not everyone qualifies for each one. With the exception of BHPH car lots, most of the options still rely on your credit score for approval.
Don't worry if your credit score is low, or even non-existent, because many of these lenders have programs for people who have less than perfect credit.
These lenders are:
- Direct lenders – Direct lenders are banks and credit unions. When you apply for an auto loan from a bank or credit union, they typically require a better credit score than most other lending specialists (credit scores ranging of around 660 and higher). If you have less than stellar credit, you may still be eligible for a car loan through a direct lender. However, you're more likely to get approved through a credit union if you're a member in good standing.
- Indirect lenders – Indirect lenders work exclusively through auto dealerships, and can be independent finance companies or captive lenders – lending subsidiaries of specific car manufacturers, such as Ford Motor Credit. If you're dealing with bad credit, you're more likely to get approved through an independent finance company.
- Buy here pay here dealerships – BHPH dealers are often a good choice for people with little to no credit, or consumers that have already been turned down for a bad credit auto loan. The reason why is that many BHPH lots don't run credit checks at all. These dealerships lend in-house, and don't rely on outside sources for financing.
Just because these lenders can work with bad credit doesn't mean that everyone can qualify with each type. In most cases, the best option for bad credit borrowers is a subprime lender, which is a type of indirect lender. Subprime lenders work with people whose credit is less than perfect. While you're not able to sit face to face with them, they're available through special finance dealers.
Requirements for Subprime Lenders
Working with a subprime lender gives you the opportunity to get approved for a loan based on other factors in addition to your credit score. These factors – such and income, employment, and down payment – show lenders your ability, stability, and willingness to pay for a car loan.
You do this by meeting these bad credit auto loan requirements:
- Proof of income – Proof of income is confirmed with a copy of your most recent computer-generated check stub showing year-to-date income of at least $1,500 to $2,000 a month from a single source.
- Proof of residence – To confirm your residence stability, a lender is going to check your residence history and verify that the address listed on your credit application is where you live. You can prove this with a recent utility bill in your name at this address.
- Proof of a working telephone – Since lenders need to know they can contact you from time to time, they ask that you provide proof of a working landline or contract cell phone in your name.
- Personal references – These lenders also typically require a list of five to eight personal references complete with names, addresses, and phone numbers.
- Down payment – A down payment is something you usually need when you're financing a vehicle with bad credit. Most subprime lenders ask for a minimum down payment of $1,000 or 10% of the car's selling price, whichever is less.
Knowing Where to Go
When you need to find an auto loan for your bad credit situation, you could spend days driving around your area looking for someone that can help you. Save yourself time and money by filling out our quick and easy car loan request form instead!
Here at Drivers Lane, we've helped hundreds of thousands of people get the loan they're looking for, and we want to help you too. We work with a nationwide network of special finance dealerships that have the proper lending resources.
Don't hesitate any longer to get the auto loan you need! Start here to get the process rolling right now.