When you have bad credit and need an auto loan, you may not have the same options available as someone with good credit. However, this doesn't mean that you're out of luck. In fact, getting a car loan with bad credit might be simpler than you know, and we can help you figure out what you need and where you need to go to get an auto loan with bad credit.
Bad Credit Auto Loan Requirements
No matter where you apply for a car loan, whether it be a bank, credit union, special finance dealer, or buy here pay here (BHPH) lot, there are lending requirements you have to meet.
They vary by lender, but you're better off if you have everything on hand. It's better to be over-prepared than under-prepared when it comes to buying a vehicle with bad credit.
Though you aren't likely to need all of this for every lender, you should have the following things on hand:
- Proof of income – A recent computer-generated check stub showing your year-to-date income is required to show proof that you make the typical minimum required income of $1,500 to $2,000 a month before taxes.
- Proof of residence – A recent utility bill in your name at the address listed on the application.
- Proof of a working telephone – A landline or contract cell phone in your name can be used, but prepaid phones aren’t accepted.
- A valid driver's license – This provides proof of identity and of the fact that you're legally allowed to drive.
- A down payment – Generally, bad credit borrowers are required to put $1,000 or 10% of the car's selling price down, whichever is less, at special finance dealerships. BHPH dealers may require a larger down payment, but the necessary amount usually depends on the vehicle's price.
- A list of personal references – A list of five to eight personal references, complete with names, addresses, and phone numbers, is typical.
You don't have to meet the same qualifications with all lenders, and you don't always need to bring in the same documents. Let's take a look at some of the options you have for where to get an auto loan with bad credit.
In most cases, getting pre-approved for a car loan through a bank or credit union is the best way to go. When you do this, the bank usually gives you a check to take to the dealership, or pays the dealer directly once you've chosen a vehicle.
The advantage to direct lending is that you know exactly what you can spend without worrying whether or not you're approved for the car you want.
One disadvantage, however, is that getting pre-approved can be difficult when you have bad credit. The best way to combat this is to start with a bank or credit union that you already have a history with, especially if you have an account in good standing. Additionally, it's generally easier to get pre-approved with the best terms at a credit union rather than a bank.
If a direct loan isn't in the cards, your next step is to find a special finance dealership that uses indirect lenders. All lending done through franchised dealers is indirect, but not all of these dealerships have a special finance department that works with the type of lenders needed for bad credit borrowing.
These lenders are called subprime lenders, or second chance lenders, and they specialize in helping people with problem credit. When you visit a special finance dealer, you don't meet face to face with the lender – that's what makes them indirect. The finance manager at the dealership works with the lenders on your behalf, and this is where it pays to have all your documents on hand.
If you're approved, the lender transmits your approval to the finance manager with your payment amount, and the dealer then gives you a list of vehicles they have in inventory that fit within the lender's criteria.
Buy Here Pay Here Dealers
Second chance financing is typically the best bet for getting an auto loan with bad credit, but it's not a guarantee. If you're turned down, a last resort is to visit a buy here pay here dealership.
These dealers are also lenders, so they don't rely on third parties to fund their loans. For this reason, they're known as in-house financing dealerships. Because these dealers don't use outside sources for credit approval, they often don't check your credit. This may seem like a good thing when you have bad credit, but it can also mean a larger down payment requirement
Another downfall of BHPH dealerships is that they may not report your on-time payments to the credit bureaus, which means this type of loan doesn't help you improve your credit score like a loan from a subprime lender could. Additionally, they only carry used cars on their lots, and you may have to make payments in person, though this is less common in this day and age.
Get a Car Loan with Bad Credit
If you're unable to get pre-approved but you're not ready to give up on second chance financing, let us help. Here at Drivers Lane, we specialize in connecting people with bad credit to special finance dealers in their area that can get them financed.
By filling out our free auto loan request form, you can start the process of getting matched to a dealership in your area without the hassle of driving all over town looking for someone who can help. Don't wait any longer, get started finding your next car loan today!