When you’re looking to apply for your next auto loan, having some cash to put down is great for increasing your approval odds – or you could put down a whole car! We're covering why trade-ins can help you get approved for an auto loan when your credit score is poor, and other tips for increasing your approval chances.
Trade-Ins and Bad Credit
As a bad credit borrower, you’re going to find it very difficult to get into a car loan without a down payment. As a general rule, subprime (or bad credit) lenders require that borrowers have at least $1,000 or 10% of the vehicle’s selling price to put down before they can be considered for approval.
If you don’t have enough in cold-hard cash, you can also use a trade-in with equity to help meet the down payment requirement. Down payments don’t have to be in cash, since a trade-in’s equity can be used to lower the amount you’d need to borrow for your next car.
Trade-ins are extremely common. They’re so common in fact, that there are websites that can offer you a rough estimate of what your vehicle’s trade-in value is! Two very common sites that have this service are Kelley Blue Book and NADAguides.
You simply enter your car’s information (such as the make, model, year, mileage, etc.), and then you get a rough estimate of what a dealership may offer you if you traded in the vehicle. This can help you determine if trading in your car is worth it, and allow you to determine how much it may be able to help you get approved for your next auto loan.
It’s also important to note that your vehicle’s value is what a dealer offers you – so it's worth it to take your trade-in to a few different dealerships to get a few offers. We also recommended taking your car to a franchised dealer for your trade-in’s make, since it likely has more value to them than a dealer of a different brand.
Other Tips to Improve Approval Odds
Having a trade-in to help cover a down payment requirement is one way to improve your approval chances, but we have some other tips you may find helpful.
Be sure to give your car a nice spit and polish before taking it to the dealership to get appraised. A clean used vehicle looks better than a dirty one, which doesn’t exactly make the best first impression! Take time to clean your vehicle inside and out, but it's generally not recommended to fix large mechanical problems or do major body work (since a dealer can likely fix it for cheaper than you can). But it’s probably worth it to buff out any minor scratches, remove interior stains, and hang an air freshener – every little bit could mean more cash in your pocket!
In addition to cleaning your car, you should also take steps to clean up your credit reports. Although you have a bad credit score now, this doesn’t mean it has to stay that way forever. You can request a free copy of your credit reports each week until April 2021 (due to the coronavirus pandemic) here, or once every 12 months from each bureau after that. Review your three credit reports and check for any errors or duplicate accounts, and work to clean them up and improve your score.
It's also recommended that you keep your credit card balances below 30%, since high credit usage can indicate that you’re a high-risk borrower. Pay down your credit cards as much as you can, and wait for the new balances to be reported on your credit reports (which you can check weekly!).
On top of all these things, you should always be making it a priority to pay all your loans and bills on time. Payment history is the biggest factor that impacts your credit score. After all, auto lenders want to see that you’re a responsible borrower that has the ability, stability, and willingness to take on your next car loan. Lenders almost always review your reports, so make sure you’re showing a solid payment history!
Looking for a Bad Credit Dealership?
Now that you’re prepared to trade in your old vehicle for your next one, your next step is looking for a dealership with the lending resources you need.
Not all lenders can work with borrowers that have less than stellar credit, but there are dealers that are signed up with subprime lenders through a special finance department. Here at Drivers Lane, we know which dealerships assist bad credit borrowers, and we want to match you to one! Fill out our free, no-obligation auto loan request form, and we’ll look for a dealer in your area with the bad credit lending options.