Financing a car isn't always easy with less than perfect credit. People in this situation may sometimes feel that buying a cheaper used vehicle from a private seller is the way to go – only to find themselves turned down for the loan they need.
This is because bad credit borrowers often need to work with a subprime lender, and these lenders typically don't provide private party loans. All hope isn't lost though, because working with the right lender may get you into an even better car than you imagined.
Purchasing From a Private Seller
When you need a loan to purchase a vehicle from a private seller, you have to go through a direct lender such as a bank or credit union. This is known as getting a direct loan, and it's often what people think of when they attempt to get pre-approved for an auto loan, or visit a "traditional" lender.
However, working with a bank or credit union can be difficult for a bad credit borrower, as these institutions typically reserve their loans for borrowers with good credit – those with a FICO credit score of 661 or above.
If you don't have the cash to purchase a car from a private seller, going through a credit union where you're a long-standing member could provide you with your best chance at financing. You could also look online for a direct loan from a virtual bank.
If this method can’t provide you the auto financing you need, your next option should be to look for a subprime lender.
Subprime Lenders and Bad Credit Car Loans
Subprime lenders are usually indirect lenders that work through special finance dealerships. Rather than judging your creditworthiness based on credit score alone, these lenders rely on many factors when they consider you for a car loan This usually includes your income, employment, residence stability, and ability to make a down payment.
These factors help them to see the big picture. But in order to know for sure, you need to prove that you meet their requirements. This means bringing documents with you to a dealer. The specifics vary by lender, but you can gather these ahead of time:
- Proof of income – A recent computer-generated check stub showing year-to-date income of $1,500 to $2,500 before taxes from a single source.
- Proof of residence – A current utility bill or bank statement in your name, at the address used on your auto loan application.
- Proof of a working phone – A bill in your name for a landline or contract cell phone.
- A valid driver's license – Cannot be revoked, suspended, or expired.
Additionally, if you're approved for financing, you're going to need a down payment and a list of personal references. Down payment amounts vary, but subprime lenders usually require at least $1,000 or 10% of the car's selling price, and often accept the lower amount. References can be friends, family, or coworkers, as long as they don't share your address. Typically, you're asked for around five to eight references complete with names, phone numbers, email, and physical addresses.
If you're approved for an auto loan through a subprime lender, you usually have a range of vehicles to choose from. You may qualify for a used car, a certified pre-owned vehicle, or even an affordable new car, depending on your credit situation.
Ready to Find a Subprime Auto Loan?
As a bad credit borrower looking for a car loan, a subprime lender can usually help, but you have to know where to find them. Not all lenders are willing to work with borrowers that have less than perfect credit, and they aren’t found at every dealership.
Fortunately, here at Drivers Lane, we work with a large network of special finance dealers all across the country that have the subprime lenders you're looking for on hand. These dealerships don't always stand out from the crowd, so you could drive all over town searching to no avail.
Instead of wasting time and fuel, start here. Fill out our fast, free, and easy auto loan request form, and we'll get you matched to a local dealer that has lenders who are ready to help.