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Auto Loan FAQ

It's no secret that everyone has questions about their auto loans or bad credit auto financing. These are the most frequent questions our customers ask us. If you don't see your question below, ask us a question today!

How big of a car loan will I qualify for?

The auto loan you can qualify for depends on several factors, and only a lender is going to be able to give you specifics in regards to how big of a car loan you can get.

Subprime lenders operate on a case-by-case basis, looking at many factors when qualifying applicants. These include credit details, income, debt levels, employment, residency, and more. Additionally, subprime lenders typically only finance vehicles that are 10 years old or newer with less than 100,000 miles on the odometer. They usually won't finance less than $5,000, either, and can restrict acceptable loan lengths.

All of these variables make it impossible to determine your approval amount until you actually apply with a subprime lender. However, you can prepare yourself for the financing process by establishing a car buying budget. As a general rule of thumb, you should aim to spend no more than 20 percent of your pre-tax monthly income on a car payment. You want to make sure you can comfortably afford the monthly payments, so you can make them on time.

It's natural to wonder how big of a car loan you can get. While only a lender will be able to tell you, you can get a rough idea of what you may qualify for using our Car Loan Estimator. Remember that this is only an estimate, and what you're actually able to qualify for depends on many factors and the lender you're working with.

How much should my car down payment be?

Bad credit car buyers are typically required to put down $1,000 or 10 percent of the vehicle's selling price, whichever is less. However, car down payment requirements vary by lender and depend on your specific situation.

Having a down payment helps you get approved because it shows the lender you're serious about paying back the loan. Lenders see a down payment as borrower participation. When you put your own money on the line, you're more invested in the purchase and more likely to pay the loan back.

Everyone has financial obligations that their income is promised to, but the more you're able to put down, the less you'll have to finance. This can result in lower monthly payments and it reduces the amount of interest charges you'll pay in the long run. Additionally, depending on the size of your down payment, having one can put you in a better equity position. You may be able to reduce, or even eliminate, the amount of time you're upside down in a vehicle.

As a borrower, especially if you're dealing with less than perfect credit, having a down payment works in your favor, and bigger is usually better. If you can afford it, a down payment of 10 to 20 percent of the vehicle's selling price is a good investment.

Can I use my trade-in as a down payment on a car loan?

When you're buying your next vehicle, there isn't an easier or more convenient way to get rid of your old car than trading it in. Your trade-in can be used as part or all of your down payment as long as it's paid off or you have equity in it.

Having equity in a car means it's worth more than what you currently owe on it. For example, if your vehicle is valued at $5,000 but you still owe $3,500 on the loan, you have $1,500 of equity. A dealer will accept your trade-in, pay off the old lender, and give you the $1,500 difference, which you're free to pocket or put toward your purchase.

However, when the opposite is true, trading in a vehicle can become more complicated. When the balance of your car loan is greater than what the vehicle's worth, this is known as negative equity, which is sometimes referred to as being upside down or underwater.

If, for example, your trade-in is worth $3,500 but you still owe $5,000, you're facing $1,500 of negative equity. This balance isn't going away. You either have to cover it out of pocket or wait to trade in your car until you build equity or the loan is paid off. In some cases, depending on your credit situation and the amount, a lender will allow you to roll over negative equity into the new loan. However, this will increase your monthly payments and interest charges, and puts you even more upside down on your new loan, so we recommend you avoid this course of action at all costs.

When approaching the trade-in process, make sure to research your car's value to get a sense of what's fair, and try to get quotes from multiple dealerships to compare offers.

What are the minimum requirements for bad credit car loans?

The subprime lenders who are willing to finance bad credit auto loans have minimum requirements applicants must meet. These will vary by lender, but the qualifications usually include:

  • Must be 18 years of age or older.
  • A valid driver’s license or state I.D. This has to list your current address and be issued by the state in which you live.
  • Proof of full coverage auto insurance.
  • A pre-tax monthly income of at least $1,500 to $2,000. You'll need to show proof of income with a computerized pay stub from the past 30 days that lists year-to-date earnings or with multiple years of professionally prepared tax returns.
  • A minimum of six months on your current job with the ability to show a three-year employment history with no large gaps (approximately 60 days) between jobs.
  • Need to be a current, legal resident or citizen of the United States or Canada. You need to show proof of residency with a utility bill in your name.
  • Proof of a working landline or contract cell phone in your name from a national carrier with a phone bill. Pre-paid phone plans are not accepted.
  • A list of anywhere from five to 10 personal references, listing names, addresses, and phone numbers. These can be anybody that knows you on a personal level.

Keep in mind that these are only the requirements we'd typically expect, and the specifics will vary depending on the lender and program.

Can I get a car loan after a repossession?

Getting approved for an auto loan after a repossession is usually difficult if it happened less than a year ago. The rules for most bad credit lenders state that any repo must be one year old, unless it was included in a bankruptcy. Also, subprime lenders typically don't approve applicants with more than one repossession on their credit.

The good news is that the impact a repossession has on your credit score lessens over time, so the longer you wait the better. Keep in mind that it's a good idea to pay any balance owed on the repossessed vehicle and any associated fees before trying to get another loan. Doing so also will also prevent additional damage from being done to your credit.

While you wait, it's a good idea to take steps to build your credit back up. A repossession can remain on your credit reports for up to seven years, but that doesn't have to stop you from improving your credit. Try getting current on any late payments, reducing your credit card balances, or checking your credit reports for errors to dispute. You can also start saving for a down payment to help your chances of getting approved.

If you need a car and simply can't wait a year, a buy here pay here dealership is one option to consider. These car lots finance vehicles in house, so they typically don't check your credit.

Can I get a car loan after a bankruptcy?

A bankruptcy stays on your credit reports for up to seven years for a Chapter 13 and up to 10 years for a Chapter 7, but you can still get a car loan after a bankruptcy. Technically, you're able to qualify for an auto loan after your bankruptcy is discharged, and there are even programs for consumers in open Chapter 13 bankruptcies.

However, if you had an existing car loan heading into your bankruptcy, this can affect your ability to get approved. If you reaffirm your loan and carry it through the bankruptcy, you may be able to get financed right after it's discharged. In fact, if you've been good with paying your car loans in the past, you may not even need subprime financing.

If you include the car loan in the bankruptcy, you're typically able to get approved immediately after it's discharged. However, in this situation, you'll most likely need subprime financing. Finally, if your vehicle is repossessed outside of your bankruptcy, you'll need to wait at least a year to get financed with a subprime lender.

You're ability to get approved for a car loan after a bankruptcy can also depend on your track record with previous auto loans, as well as your overall credit history before the bankruptcy.

Can I get a car loan while in a Chapter 13 bankruptcy?

Yes, it's possible to get an auto loan while you're in an open Chapter 13 bankruptcy, but there's a specific process you have to follow.

The first thing you need to do is find a lender that's willing to work with you. While you may not have luck at a bank or credit union, special finance dealerships have subprime lending connections that are willing to help people dealing with credit problems like bankruptcy.

At the dealership, you need them to write up a buyer's order that lists the vehicle's information and price, loan terms, interest rate, and monthly payment amount. Make sure the buyer's order lists "or similar" next to your car choice and the highest possible interest rate you can receive. This protects you from having to start the process over if the order is ruled invalid in the event the car you want is gone by the time you get the court's approval or you only qualify for a higher rate than what's listed on the statement.

Next, take your buyer's order to your bankruptcy trustee, where you need to be ready to explain why you need the vehicle. If the trustee approves, they'll file a Motion to Incur Additional Debt with the court. If the court approves the motion, you'll get an Order to Incur Additional Debt. Take this authorization back to the dealership to move forward with the car buying process.

Keep in mind that some subprime lenders require your bankruptcy plan to be one year from filing before they'll consider your application.

Can I get an auto loan if I have no credit?

You can still get a car loan if you have no credit, but it'll likely come with less favorable terms and may limit the number of lenders willing to work with you.

Lenders make approval decisions based on risk. If you don't have a credit history, they're more hesitant to approve you because they have no way to judge your repayment behavior.

Even when you find a lender willing to finance you, you need to be prepared for terms that reflect your lack of credit. Borrowing without a credit history likely means you'll only be offered higher than average interest rates. Also, you may be required to make a down payment or get a cosigner with good credit to share responsibility for the loan with you.

In your search for financing, make sure to ask about first-time buyer programs. Many lenders, including some finance arms of automakers, offer these programs to people who've never financed a vehicle. As long as they have the income to qualify and meet the other requirements, first-time buyers can get approved even without a credit history.

If you want more ideal terms, you may need to spend some time starting your credit history before financing a car. Establishing a strong payment history on a credit card or small loan is a good place to start.

Can a cosigner help me get a car loan?

In many cases, a cosigner can help you get an auto loan. In fact, car buyers with bad credit are sometimes required to have a cosigner in order to get approved.

A cosigner can be a friend, spouse, or family member with good credit who agrees to sign the loan alongside you and take responsibility for it. This means the cosigner is obligated to pay back the loan in the event the primary borrower can't, and the loan will show on their credit reports and impact their credit scores – for better or worse. For these reasons, it's important that you and your cosigner understand the arrangement before entering into it.

With the cosigner attached to the loan, a lender may be more willing to approve you. However, keep in mind that both the primary borrower and cosigner have to meet the lender's income requirements individually unless the cosigner is your spouse. If you use your spouse as your cosigner, you can combine both of your incomes when meeting the lender's income requirements.

If you don't have a cosigner, or don’t want a friend or family member to take on the responsibility, you can try boosting your chances in other ways such as saving up a larger down payment or working to improve your credit before applying.

Can I use Drivers Lane to finance a vehicle through a private owner?

No. While this is one of the questions we receive the most often, you can't use our service to finance a vehicle through a private seller.

To start, Drivers Lane isn't a lender. We are a loan matching service. We connect consumers dealing with credit problems to local dealerships within our nationwide network. The special finance dealerships we are teamed up with are connected to subprime lenders who work with people facing credit issues.

Subprime lenders typically won't give you a loan for a vehicle purchase through a private owner because there's too much risk involved and too many problems that can arise. In fact, subprime lenders rarely loan directly. Instead, they choose to work exclusively through licensed car dealers who act as their representatives.

The reason for this arrangement is subprime lenders require borrowers to prove the information in their applications is correct with documentation. Dealers collect this information for lenders, as well as verify the information surrounding the vehicle being financed.

Subprime lenders stay away from bad credit car loans for private sales because the additional step of dealer verification doesn't exist. Without it, they can't be certain a borrower's information is accurate and the vehicle being financed is what the paperwork says it is.

Can I use Drivers Lane to refinance my current auto loan?

Drivers Lane can't refinance your current car loan because we aren't a lender. Instead, we've teamed up with a network of dealers who are trained in special finance and are connected to lenders who are willing to work with consumers with less than perfect credit.

We can't help you directly if you're trying to refinance your current auto loan, but we can offer advice.

When you refinance a car loan, you're basically replacing your current loan with a new one, usually with a different lender. While there are many reasons to refinance, the two main ones are to get a lower interest rate and/or lower your monthly payment.

There's no set amount of time that needs to pass before you can refinance, but you'll need to meet certain requirements. For starters, you have to be current with your payments and can't have negative equity. Also, your vehicle needs to meet the new lender's age and mileage restrictions, and the loan amount has to fall within their acceptable limits.

Finally, refinancing is usually reserved for consumers with good credit, or those who've improved their credit enough since taking out the loan. Consumers with bad credit who want to refinance need to stick with their current loan and make the payments on time to help improve their credit.

Should I find a car first before applying for a bad credit auto loan?

When you need a bad credit car loan, you shouldn't worry about choosing a car before you apply. You don't want to have your heart set on any specific vehicle because it's important to get your financing arranged first.

The reason for this is most lenders don't work with car buyers with bad credit. The ones that do – subprime lenders – only lend indirectly through their special finance dealer partners. So, you need to find a specific dealership to work with in order to get financed.

Even when you visit one of these dealerships, it's not time to pick your vehicle. First, you need to apply with their finance department, and they'll try to get you approved with one of their lenders. The lender will send back a payment call that sets a maximum loan and payment amount in addition to the other loan terms. With that established, you can choose from the vehicles in the dealership's inventory that you qualify for. Keep in mind that subprime lenders typically only finance vehicles that are 10 years old or newer and have less than 100,000 miles on the odometer.

While it’s best to know what you need in a vehicle, now isn’t the time to finance your dream car. A bad credit auto loan should be used a credit-building tool when you need a vehicle. By getting something you can afford, you can make all the payments on time and improve your credit over the course of the loan.

How can Drivers Lane help me if I've been turned down before?

If you've been turned down for a car loan in the past, Drivers Lane may be able to help because we're connected to a nationwide network of dealerships that are trained in special finance.

Often, people who’ve been turned down for auto loans in the past weren’t looking in the right place, or for the right type of loan. Auto lenders look to your credit history and credit score when making approval decisions, and most don’t work with borrowers dealing with credit problems such as bad credit, no credit, or issues like a past repossession or bankruptcy.

Drivers Lane may be able to help you because our network of dealers is connected to lenders who offer options for consumers dealing with credit problems. After you fill out our auto loan request form, we'll work to connect you with one of these dealers in your local area.

Being turned down for an auto loan doesn't feel good, but it isn't the end of the world. Think of it as an opportunity to take a good, hard look at your credit. Figure out why you were turned down, which the lender is required to tell you, and use it as a learning experience for how you can fix the issue and move toward a brighter credit future.

Ideally, you can identify steps to take to improve the situation so you're approved when you're ready to apply again.

How much will my monthly payment be on a car loan?

Monthly car payments are determined by dividing the amount of your loan by the loan term, while factoring in interest. Therefore, many things play a role in establishing how much your monthly payment will be, including the price of the vehicle, your down payment, the value of your trade-in (if you have one), taxes and fees, your interest rate, and your loan term.

When you're budgeting for your car loan, it's important to keep the total cost in mind while also making sure you can comfortably afford the monthly payment. The length of your car loan plays a huge role in this.

A shorter loan term increases the amount of your monthly payment, but also allows you to pay the vehicle off faster and lowers your overall cost because you'll pay less in interest charges. You can opt for lower monthly payments by extending your loan term, but this leads to a higher overall cost because more interest charges will accrue. Buyers with bad credit need to be especially careful when considering this option.

We recommend choosing the shortest term possible that still gets you a monthly payment that fits your budget. A good tip, especially if you're dealing with less than perfect credit, is to use no more than 15 to 20 percent of your pre-tax monthly income on your entire car budget. In addition to your monthly payment, make sure to include additional costs of car ownership such as auto insurance, fuel, and maintenance.

You can use online tools such as a payment or car loan calculator to see an example of what kind of monthly payment you might expect.

How much is the interest rate on a car loan with bad credit?

Bad credit car loans carry higher interest rates than traditional auto loans. This is because lenders base interest rates on risk, and your credit score is the most important factor in that evaluation. On the other end of the spectrum, the better your credit, the better your chances of qualifying for lower rates.

However, lenders use many other factors when setting your interest rate. Where you live and the laws in your state can influence your APR, as can the country's baseline interest rate that's set by the Federal Reserve. The lender you work with and the loan programs they offer can also have an impact.

Furthermore, whether you're financing a new or used vehicle can affect your interest rate. Generally speaking, lenders offer lower rates for new cars and higher rates for used cars. Interest rates can also be higher on loans for older cars or vehicles with more miles on them.

All of the factors involved make it difficult to figure out what interest rate you'll get until you actually apply for a car loan. However, we can tell you that a higher interest rate will lead to a higher total cost. For this reason, if you need an auto loan and have bad credit, it's a good idea to keep the loan term as short as possible, have a down payment, and not finance more than selling price of the car.

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