For consumers with less than perfect credit, getting approved to finance a car can be a challenge. However, there are plenty of lenders who finance subprime auto loans. It's very possible to get approved with one of these lenders, and these tips can help your chances.
According to the latest Experian report, the total amount of auto loans made to consumers with credit scores below 600 is going down. In the first three months of 2016, 26.48% of all loans were made to those with credit scores below 600. That figure dropped to 24.10% in the first three months of 2017
However, 44.03% of all loans in the first three months of 2017 belonged to consumers with credit scores of 660 or below. That’s a huge chunk of the market, meaning it's very possible for people with less than perfect credit to get financed.
These four tips will help you improve your chances of getting approved.
1. Check Your Credit
If you're going to finance a car, it's best to know what's going on with your credit. This means checking your credit reports with all three of the credit bureaus and viewing your credit score from at least one reliable source.
You are entitled to a complimentary copy of your credit report from each of the three national credit bureaus — Experian, Equifax and TransUnion — every 12 months. You'll want to know what's on your reports because lenders will use them when making credit decisions. Credit reports can be ordered through the federally authorized www.annualcreditreport.com.
Lenders will also look at your credit score when making decisions. It will also be used to determine the interest rate for which you qualify. FICO is the most widely used credit score model amongst lenders, so try to get access to that if you can.
2. Work to Improve Your Credit
Once you have viewed your reports and score, you should have a better idea of areas you need to improve. If you have the time, it might be best to hold off on your purchase for a bit while you work on improving your credit score.
What you'll want to do is carefully check over your credit reports and look for errors. Mistakes happen, but consumers are allowed to dispute misinformation with the credit bureau in question. Getting these kinds of errors removed can give your score a boost.
Other good credit building tips include: never missing a payment so you can establish a strong payment history on your accounts, paying down credit card balances until they are at least below 30% of their limits, and getting current on all past-due payments.
3. Prepare for a Subprime Auto Loan
Subprime auto loans work a bit differently than "regular" car loans, and you should prepare accordingly. For starters, subprime auto loans come with higher than average interest rates. This is because lenders typically assign interest rates based on an applicant's credit score.
A higher interest rate means the loan is going to end up costing more in the long run. For example, somebody with an 8% interest rate will pay more to finance the same car than somebody with a 4% interest rate.
The other thing to keep in mind is that your goal should be to use the auto loan to improve your credit. Every timely loan payment you make will work toward improving your credit standing.
But, to make that easier, you will want to prepare yourself and your budget. Our top tips for accomplishing this are:
- Keep the total cost in mind while also being mindful of your monthly budget.
- Budget with the higher interest rate in mind.
- Choose an affordable vehicle.
- Keep the loan term as short as possible.
- Know you will most likely be required to provide a down payment.
4. Get Connected to the People that Can Help
Oftentimes, the trickiest part of financing a car with less than perfect credit is finding the dealership or lender that is willing to work with you. This is because the majority of dealerships and lenders don't accept applicants with poor credit.
The key is finding the ones that do. There are plenty of dealerships that specialize in helping people in unique credit situations. Often called special finance dealerships, these places are connected to a wide range of lenders.
So, how do you go about finding one of these dealerships? That's where Drivers Lane comes in.
We are connected to a nationwide network of special finance dealerships. When you use our service, we will connect you with one in your local area. This takes the hassle out of trying to find help on your own.
The best part is that our service is free, we work fast, and it doesn't put you under any obligation. You can get started right now by filling out our car loan request form online.