Applying for a car loan can be scary, especially if you have bad credit. There are forms to fill out, paperwork to organize, and then there is always the risk of being turned down. Getting a car loan doesn’t have to be frightening, it can actually be pretty easy once you have a good idea of what is needed. In this guide we will answer your questions and provide you with the information you need to be approved for a car loan for bad credit.
History of car loans for bad credit
Car loans have been around for more than 90 years. Initially they were designed to help the average American afford an automobile. Payments were made to the dealership on a weekly basis, until the car was completely paid off. The issue of a person’s past credit rarely came up, and consumers only needed to show proof of gainful employment in order to drive a car off the lot.
By the mid 1980’s things had begun to change. After the oil and resulting financial crisis in the 1970’s, many Americans were finding it tough to make ends meet. Foreclosures and repos were common, and when the economy began to improve in the 1980’s people were ready to finance a car.
Unfortunately banks were often wary of approving auto loans if a repo or foreclosure was listed on the applicant’s credit report.
For one of the first times in the auto industry a person’s credit history and score was playing a major role in whether they were approved for a car loan.
An overwhelming number of applicants found that due to their bad credit score they were not approved for a traditional car loan, and Buy Here Pay Here dealerships saw this as an opportunity to make their car lots a success. Since the 1980’s Buy Here Pay Here lots have been approving bad credit auto loans for consumers across the nation.
How do car loans for bad credit work?
Bad credit and traditional car loans both work the same way. You will fill out the required application, which is typically the same for both types of auto loans. You will also be required to provide the same information and supporting documentation that will include,
- State or federal license or id.
- Proof of residency (usually a utility bill)
- Documented employment history
- Proof of earnings (paycheck stubs, tax records and bank statements can all be used to provide proof of income)
- Most recent copy of your credit history and FICO score.
Where a bad credit car loan differs from a traditional one is where you apply and the amount of the interest rate. Instead of applying at a bank or credit union, you will fill out and submit the paperwork at the Buy Here Pay Here lot.
In many cases consumers are approved on the spot, especially if they have a substantial down payment in hand. A trade-in can also help speed up the process, and even increase your chances of being approved.
The main area where bad credit auto loans differ is their high interest rates. If you have bad or even no credit you will probably be stuck paying these high interest rates. The good news is that once you have finished paying off the bad credit car loan the next time you need to finance a vehicle your FICO score should have improved enough that you can go through a traditional lending institution.
It is important to remember that while most Buy Here Pay Here lots are honest, there are some that aren’t quite as trustworthy. If you are asked to pay an interest rate higher than 15 percent, you might want to consider taking your business elsewhere.
Are there car loans for people with bad credit and no money down?
A common question asked by people with bad credit is if it is possible for them to get a car loan with no money down, and the answer is “yes”. You just have to be willing to do your homework and take the time to carefully research all of your lending options.
In almost all cases a traditional lending institution will not approve a bad credit auto loan, especially if you don’t have a substantial down payment. Even if you do have a down payment your chances of being approved are slim if you have bad or no credit.
Simply by researching the options offered at the various Buy Here Pay Here lots can put you behind the wheel even if you don’t have a down payment.
One option is to use your old vehicle as a trade-in, and some Buy Here Pay Here auto lots will take this in lieu of a monetary down payment.
If you don’t even have a trade-in you can still get approved for a bad credit car loan at some Buy Here Pay Here lots. Once again it is important to do your research, so you can find the dealerships most likely to consider your loan application.
There are some things you can do to vastly improve your chances of being approved and this typically includes,
- Knowing your current credit score and making sure your report is accurate.
- If you have unused credit accounts it is important to leave them open. Closing an account simply due to unuse can shorten your credit history, which in turn lowers your FICO score.
- Make sure you have a valid phone number so any potential lenders can reach you quickly and easily.
- Have proof that you have resided at the same residence for at least one year.
- Have steady and verifiable income.
- If possible pay off smaller credit card bills to show potential lenders that you are capable of paying your debts.
- Be familiar with recent auto loan rates. While you will be paying higher interest rates on a bad credit car loan with no down payment, knowing what is being charged by a traditional lender will help you when you are negotiating with the dealership.
While these tips will not guarantee that you will be approved, it will significantly improve your chances especially if you do not have a down payment or trade-in.
What banks do car loans for bad credit?
While your best chances of being approved for a car loan with bad credit will probably be through a Buy Here Pay Here lot, there are some banks that also work with clients that have poor FICO scores.
It is impossible to list all of the banks that are willing to take a chance and approve a bad credit auto loan.
The acceptance rate for each financial institution varies, and approval is often based on an individual basis.
You can find listings for most of the major banks and credit unions that will include their approval ratings for auto loans. A good place to start reviewing banks is at Credit Karma, where you can also check your history and FICO score.
Doing a little research first will help narrow down your possible options, and save you some time since you won’t be filling out applications at banks that have a record for turning down bad credit auto loans.
There are also a few steps that you can take that will dramatically improve your chances for being approved. These can include,
- Know your current credit score. If it is 501 to 600 you are considered a subprime borrower, and below 500 is considered “deep subprime”. If your credit score is 500 or lower you will probably want to wait until you have managed to raise it to apply for an auto loan from a bank.
- Have all of your documents in order. This will include current id, proof of residency and employment, along with a report of your credit history.
- Don’t ask to borrow more than you need or can afford. Banks already have a copy of your earnings and know exactly what you can afford to borrow. If the amount is too high your chances of being approved will decrease significantly.
- Be prepared to use a cosigner. Sometimes the only way to be approved for a bad credit car loan is with the help of a cosigner. While this isn’t always necessary at a Buy Here Pay Here dealership, it is often a condition for approval at a bank or credit union.
Are there car loans for bad credit without a cosigner?
If you have great credit than getting a car loan is pretty easy, even if you are applying on your own. On the other hand if you have bad credit getting approved can be challenging, especially if you don’t have a cosigner.
This doesn’t mean you should just give up and start looking for a bicycle, there are steps that you can take to increase your chances of being approved for a bad credit car loan even if you don’t have a cosigner.
Credit scores below 650 are generally considered to be subprime, and this often causes traditional lending institutions to view you as a high risk applicant. Buy Here Pay Here dealerships on the other hand often have in house financing, and this can make it easier for you to get the approval you need.
If you have bad credit and no cosigner you will need to have a down payment. In some cases it might need to be significantly larger than that required of someone with good credit. You should also expect to make larger monthly payments, and the interest rate on the loan will be higher as well. Having a decent trade-in can also improve your chances of being approved especially if it is combined with a large down payment.
Once you have all of your paperwork in order and the necessary down payment, you are ready to apply for a bad credit auto loan without the help of a cosigner.
It is important to remember that you might not be approved the first time you apply. If you can’t wait for your credit score to improve or find a reliable cosigner, then all you can do is keep trying and continue to put money aside to increase the amount of your down payment.
Can I get a car loan with bad credit and a repo?
After the collapse of the housing market bubble and subsequent financial crisis, millions of Americans suddenly found that they couldn’t make ends meet. By 2010 the three major credit reporting agencies were releasing statistics that showed vehicle repossessions were at an all-time high.
Even though these rates have been steadily falling in most states since 2012, millions of people are still dealing with the consequences of a vehicle repossession in their credit history.
According to Experian, one of the main credit reporting agencies, an auto repo can stay in a person’s credit history for up to 10 years.
Having a past auto repossession will also have a negative effect on your credit score, and this will make it difficult to find a lender willing to take a risk and approve you for a car loan. It should be clarified that having bad credit and a repo will only make it difficult to be approved, not completely impossible. There are a few things you can do to improve your chances of driving off the lot in a new or used vehicle.
- Do your research first. Credit Karma, Experian and Equifax all keep track of banks approval rates and update their postings on a regular basis.
- Know your current credit score and update your history. Even though a vehicle repossession will stay on your credit report for up to 10 years, making other payments on time will help balance out its negative effects. You want to make sure that these payments appear on the latest copy of your credit report to reassure potential lenders that you are able to pay your bills on time.
- Be prepared to lay down a large down payment. If you have bad credit and a repo you will need a substantial down payment. A trade-in can help lower the amount of the payment, but at almost any Buy Here Pay Here lot you will need to put some money down.
- Consider using a cosigner. A cosigner with a good FICO score and strong credit history can significantly improve your chances of being approved for a car loan. If you also able to afford a large down payment, there is a chance you could even be approved by a traditional lending institution.
Having a vehicle repossession and bad credit will make it a little more difficult to be approved for an auto loan, but it does not mean that it will be impossible.
What credit rating qualifies for a bad credit car loan?
One of the first things you should know is that individual lenders set their own standards for “good” and “bad” FICO scores. For those potential borrowers on the cusp, this can work to their advantage. Where one bank might consider their credit score to be in the “poor” range, another might have it listed as “fair”.
If you are willing to take the time and do a little research you might be able to find a lender that doesn’t consider your credit score to be in the subprime range.
While there can be some slight variations on what is considered a good or bad credit score there is a general formula that all banks, credit unions and auto dealerships follow. This will also give you a good idea of where your personal credit score falls.
- 300 – 629: Bad credit
- 630 – 689: Fair credit
- 690 – 719: Good credit
- 720 and up is considered an excellent credit score.
The auto industry occasionally uses a slightly different system that ranges from 250 to 900, but the general principle is the same. If your FICO score is below 650, you are considered a subprime borrow and qualify for a bad credit car loan.
Are there car loans for bad credit with low interest rates?
Surprisingly enough there are car loans for bad credit with low interest rates, you just have to know where and how to find them.
The strengthening economy and stable job market has resulted in more Americans searching for a vehicle, and this has caused competition among potential lenders. While most banks and credit unions are still only offering bad credit auto loans with high interest rates, many of the Buy Here Pay Here lots are competing with each other to secure your business. This means that you have more leverage when it comes to negotiating the interest rates on the bad credit car loan.
You can also improve your chances of getting a car loan with low interest rates even if you have bad credit simply by following these steps. While it might take a little time, it will be worth it in the long run when you are making smaller monthly payments and get the vehicle that you want.
- The most important step is to shop around. Competition for business is fierce, and Buy Here Pay Here lots are willing and eager to work with potential customers.
- Be familiar with the average interest rates on all types of auto loans. This information will be extremely helpful when you are negotiating with a potential lender. In general you should expect to pay interest rates around 4 to 5 percent if you have good credit. If you are applying for a bad credit car loan your interest rates will probably be around 10 to 13 percent.
- The National Consumer Law Center recommends being familiar with your credit score and report before starting negotiations. Some consumers have found that will their score might still be in the subprime level their credit history was strong enough to qualify them for a lower interest rate. It is important to remember that recent payments show up in your history well before they affect your FICO score.
- Subprime ratings vary by industry. As previously stated credit ratings can vary slightly in the housing and auto industries. What might be considered subprime in the housing industry could fall into the moderate level in the auto market. This is just one more reason you should be familiar with your credit score.
- Bring a friend or relative along when you are applying for a car loan with poor credit. A consumer attorney based in Massachusetts recommends employing this strategy during the negotiations. Sometimes simply having their support can give you the confidence you need to negotiate terms you and the auto dealership can live with.
- The length of the payment period matters. If you receive a low interest bad credit loan that is stretched out over a long time, in the end you will still be paying more for the car than you would with a good FICO score. When you are negotiating for lower interest rates you also want to keep the loan to a period around 64 to 80 months. This ensures your payments are still low and that the car won’t deprecate significantly in value before it is paid off.
- Look for any “add-ons” in the loan agreement. If you have bad credit you are a subprime borrower and this puts you at risk for “add-ons”. This is a trick car dealerships employ in order to make the most money off of the sale. You may think you are getting a great rate on the loan but by the time you are done paying for the extra goods and services added on to the final cost, it won’t matter that you negotiated for low interest payments.
- Make sure that the terms of the loan agreement are final. It is not uncommon for bad credit auto loans to initially come with low interest rates that quickly skyrocket after a set period of time. Legally the Buy Here Pay Here lot or any other financial institution does not need to verbally discuss this with the applicant, as long as it is printed in the agreement. This means that it is your responsibility to see that the terms of the auto loan are final and not flexible.
Can a car title help get an auto loan for bad credit?
There is only one way to answer this question, and that is to simply state that it is a bad idea to use a car title to secure a auto loan for bad credit. You can though find hundreds of places willing to loan you thousands of dollars towards the purchase of a new vehicle even if you have bad credit, as long as you are willing to temporarily sign over your car title.
Consumer affairs activists, credit monitoring agencies and financial experts all agree that the while this may be an easy way to get money fast, a title loan lending company is never the best route to go.
In some states car title loan companies are very loosely regulated. They do not meet the requirements necessary to be classified as a “financial institution”, and are therefore not required to meet industry standards. This loophole in state and federal laws has made it possible for these companies to charge outrageous interest rates.
It is not uncommon for title loan companies to charge 25 percent interest on payments per month, which equals to an APR of 300 percent.
With interest rates that high most borrowers find that they need to take another title loan out just to stay current with the first one. Before they know it they are behind on both titles loans, and their vehicles are repossessed.
Now not only are they dealing with an even lower FICO score, there are also vehicles repossessions on their credit history. Adding to their problems is the fact that they are now without a vehicle. As tempting as it might be too go to a title loan company if you have bad credit and need a car, it is still better to take your time and apply at a traditional lending institution or a Buy Here Pay Here lot. In the long run you will be glad that you did.
Are there car loans for bad credit and centrelink?
Many consumers want to know if it is possible for them to get a car loan if they have bad credit and are living on disability, and the answer is “yes”. You can get a bad credit car loan even if your only income is your disability payment.
Being on Centrelink, Social Security and other programs does not necessarily mean that you won’t be approved for an auto loan. While having bad credit and only being able to show proof of disability income will make it more difficult, if you follow these next couple of steps you can get approved for an affordable car loan.
- Be able to show proof of income. Even though you may be living on centrelink or SSI disability payments, it still counts as income. Keeping records of all of the payments is crucial when you are establishing proof of income. If the checks are deposited into your bank account you will want to have these records in order.
- Is there more than one income in the household? If the only income is from your disability payments you can still get approved for a bad credit auto loan, but if your spouse or significant other is also contributing to the household finances this could significantly increase your changes for approval. You do not need to list your spouse on the actual vehicle title or even add them to the loan agreement, but being able to show additional income can give potential lenders extra peace of mind.
- Consider a cosigner. If the amount of the loan exceeds what the lender believes you can afford or if your credit is almost nonexistent, you might need to consider taking on a cosigner. While many applicants resist the thought of involving someone else in their personal finances, sometimes it is the only way you can get the approval you need to drive off the lot in a new vehicle.
Are there auto loans for bad credit with a private seller?
You can find auto loans for bad credit with a private seller, and there are pros and cons associated with this option.
In some cases going through a private seller can increase your chances of being approved, but it can require a lot of time and effort on your part.
Some of the advantages of a bad credit auto loan with a private seller are that you have several possible options to choose from. You can pick which loans to apply for based on the lender’s approval ratings, and this can dramatically improve your chances of getting the financing you need. This is an important tip to remember since not being approved for a loan can lower your credit score.
A private party loan can also provide you with the unique opportunity of dealing directly with the seller. This means that it is easier for you to negotiate interest rates and other payment terms. Since you are probably dealing directly with the vehicle’s previous owner it is generally easier for you to get a complete history of its repairs, along with any problems that might need to be dealt with in a timely manner.
While there are advantages to a bad credit car loan with a private seller there are also some disadvantages. These can include,
- The length of the loan is typically shorter, which often translates into higher monthly payments.
- You will not be eligible for any dealer incentives, and some manufacturer’s warranties may not be valid after a private sale.
- In most cases you will need loan approval before approaching a private seller, and this can limit you in the final negotiations since you already know exactly what you can afford to spend.
While there are pros and cons to private party bad credit auto loans in some cases the advantages may make this the best option for you.
What are the car loans for bad credit reviews saying?
When it comes to bad credit auto loans the reviews are mixed, and this is due to all of the available options. Credit Karma, Experian and Equifax all agree that you need to take your time and carefully research your options before applying for any type of car loan.
Car loans for bad credit from a bank or other traditional lending institution generally receive good reviews, and the same is true for most Buy Here Pay Here lots.
It is important to do your research since interest rates can and do vary between dealerships.
If you want to find reviews for bad credit auto lenders near you, most financial experts recommend checking with Credit Karma or Experian. You will also be able to finding approval ratings so it will be easier for you to choose the right lender for your bad credit car loan.