It’s no secret that your credit score plays a big role in whether or not you can get approved for an auto loan. However, there are other ways you can improve your chances of car loan approval. These tips can increase your odds of getting approved even if you're dealing with bad credit.
3 Ways to Increase Your Chances of Auto Loan Approval
Besides improving your credit score, here are three other ways you can improve your chances of auto loan approval:
- Add a cosigner or co-borrower – When you add a cosigner or a co-borrower to a car loan, your approval odds are likely to increase, and so are your chances of getting a more affordable auto loan. Cosigners are friends or family members that let you “borrow” their good credit to help you, the primary borrower, get approved. Cosigners put their name on the loan, which makes them legally obligated to it, but they don't own the vehicle. Co-borrowers, on the other hand, are usually spouses, share ownership of the car, and their name is listed on the title. You can combine incomes with a co-borrower that is a spouse and possibly qualify for better terms. Cosigners and co-borrowers must meet the lender’s requirements, which include having enough available income and a good credit score.
- Make a larger down payment – A down payment is typically required for a bad credit auto loan. Many bad credit lenders require a minimum of $1,000 or 10% of the vehicle's selling price. Although you’re safe if you put the minimum amount down, it’s better if you make a larger down payment if you have bad credit. Not only does this lower your monthly payment and total interest charges paid, but lenders are more likely to approve you with a larger down payment.
- Work with the right lender – While you can try to get pre-approved with your bank or credit union first, you should also consider other types of lenders, especially if you have bad credit. If you’re turned down by a direct lender, you may need to work with indirect subprime lenders or buy here pay here (BHPH) dealerships, as they both specialize in bad credit car loans.
Bad Credit Auto Loan Requirements
If you’ve got bad credit, you probably need to apply with a subprime lender or buy here pay here dealer. Each has different requirements that need to be met, so let's take a look at what to expect:
Subprime lenders check your credit score, and have a list of requirements that include:
- Proof of income – Most lenders require that you make at least $1,500 to $2,000 a month before taxes from a single source. Bring in a recent computer-generated pay stub showing your year-to-date earnings to serve as proof of income.
- Proof of residency – A recent utility bill in your name listing the address on the application.
- Proof of a working phone – A recent phone bill in your name; it can be a landline or a contract cell phone.
- List of personal references – A list of five to eight personal references with names, addresses, and phone numbers is typically asked for.
Buy here pay here dealerships
Buy here pay here dealers don’t rely on any third-party lenders. Instead, they finance the vehicles on their lots themselves, and they usually don't check your credit. This makes it easier for those with bad credit or no credit to qualify. All these dealerships need to approve you for financing is:
- A qualifying income – Similar to subprime lenders, they generally require that you make at least $1,500 to $2,000 a month before taxes. You may also be required to show proof of income.
- A down payment – BHPH dealers almost always require a down payment, and the amount needed usually depends on the cost of the car you're financing.
Ready to Start the Financing Journey?
Just because you have bad credit or no credit doesn’t mean you’re automatically disqualified from getting an auto loan. You can improve your chances of car loan approval by having a cosigner or co-borrower, making a larger down payment, and working with the right lender.
Once you feel confident about starting the auto financing journey, we can help you find the right dealership. Drivers Lane specializes in connecting people to dealers that know how to work with unique credit situations.
Simply fill out our easy, fast, and free car loan request form, and we'll get the process of matching you to a dealer near you started!