It is possible to get pre-approved for an auto loan if you have bad credit, but it might not be easy. If a pre-approval isn't in the cards for you, there are other options to getting the car loan you need.
What Is a Pre-Approval?
A pre-approval is a loan from a direct lender such as a bank, credit union, or online lender. These loans are given to you directly by the lender, and basically make you a cash shopper at the dealership. You go into the process of choosing your vehicle knowing what your spending limit and interest rate are.
However, a pre-approval is difficult to come by when you're struggling with credit issues. Banks typically reserve these loans for the borrowers with good credit. With poor credit, you may not be out of the running if you apply at your own financial institution, especially if you're a member in good standing. But there’s no guarantees since they’re still likely to have higher credit score requirements.
What if I Can't Get Pre-Approved for a Car Loan?
If your credit score doesn't meet the threshold with a direct lender, you're not out of options. There are a few types of second chance lenders that may be able to help you get the auto loan you need despite your credit score.
Lenders such as subprime lenders and in-house financing dealerships rely on more than your credit to get you approved for a car loan. Both of these types of lenders work with borrowers who have bad credit, but the benefits and requirements are very different.
Second Chance Auto Loan Options
When you're struggling with bad credit, you typically have a better chance of financing through alternate lenders, rather than getting a pre-approved loan. Your options are usually an in-house financing lender, also known as a buy here pay here dealer, or a subprime lender, which is an indirect lender that’s signed up with special finance dealerships.
Buy here pay here dealerships (BHPH) are both dealers and lenders. They don't wait for an outside approval from a third-party lender. Because of this, they usually also don't always check your credit score. Instead, BHPH dealerships are more concerned with your ability to make your auto loan payments, and your willingness to make a down payment.
BHPH dealers are often a good choice for bad credit borrowers because you can typically get in and out on the same day, driving away in your financed car. You should know, though, that BHPH dealerships only sell used vehicles and you're likely to get a higher than average interest rate.
Additionally, since BHPH dealers don't often check your credit score, they also may not report your payments, either. Without your timely payments being reported to the credit bureaus, you don't have a chance for your auto loan to improve your credit score. Make sure to ask about their reporting practices ahead of time if this matters to you.
Subprime lenders, on the other hand, do report your on-time payments to the credit bureaus. A car loan from a subprime lender can be a wonderful way to begin improving your credit score, so that you can potentially qualify for the pre-approval you're looking for the next time around.
These lenders work with borrowers in less than perfect credit situations, and look at more than just your credit score. Subprime lenders ask that you prove your ability, stability, and willingness to take on an auto loan by asking for documentation about your income, living situation, employment, and more.
With a bad credit car loan, you're also not limited to just used vehicles like at a BHPH lot. Depending on your situation and the dealership and lender you're applying with, you could qualify for used, certified pre-owned, or even an affordable new car!
Just know that there's a price for getting an auto loan with poor credit, and it typically comes in the form of a higher than average interest rate. It's not likely to be as high as it would be with a BHPH dealer, but it may not be as low as you hope.
Ready to Get Started?
If you can't get pre-approved for a car loan with bad credit, you have plenty of other options. Poor credit doesn't have to stand in your way when you work with Drivers Lane. We have a nationwide network of special finance dealerships that are signed up with the subprime lenders you need.
Our service can connect you to a local dealer and save you the time and hassle of searching on your own. The process is fast, free, and there's never any obligation, so fill out our auto loan request form to get started right now!