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Tips for Financing a Car With Bad Credit
Before requesting an auto loan quote, you need to determine whether you will qualify for affordable vehicle financing. This is one of the most important steps on your car-buying checklist. One of the biggest factors in whether or not you qualify for a loan is your credit score, as many loans have minimum credit requirements.
If you do not know your credit score, you can request a free report to get an idea of where you fall before you attempt to finance the purchase of a new motor vehicle. Most lenders will look at your FICO score to determine whether you meet minimum credit requirements. Your score will range from 300 to 850. Scores of less than 620 are considered poor, while scores of 680 or higher are good.
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If your credit score ranges between 300 and 679, fewer financing options may be available to you as you shop around for a loan. However, you may be able to find bad credit car loans with higher interest rates if you need a vehicle quickly and do not have the time to improve your credit score before financing. For tips on how to get pre-approved for a car loan even if your credit score is low, review the information below.
Where to Find Car Loans for People With Bad Credit
Several types of poor credit auto loans may be available to you if you are a “subprime” borrower whose credit score ranges from 580 to 669. You may even be able to find relatively good car loans for bad credit even with a very poor credit score of between 300 and 579. However, this may depend on other factors, such as how much cash you are putting down before financing.
To get a car loan with subprime credit, take the time to research different types of lenders that work with low-credit borrowers, including conventional lenders and auto dealerships. You may struggle to obtain a loan through a conventional lender if your credit is subprime, but some car dealerships may agree to finance your loan or connect you with a lender that works with low-credit borrowers.
If you choose to finance directly through an auto dealership, you will typically need to purchase and finance the vehicle from the same dealer. This automotive finance option is known as “Buy-Here-Pay-Here” financing (BHPH).
In most cases, you can qualify for these car loans if you earn a steady income and can provide a home address. Some BHPD dealers will require you to make your car payments in person at the auto dealership, while others will allow you to pay online, by phone or by mail.
Moreover, you may be able to apply for auto loan financing through a credit union, especially if you are already a member. If you are not currently a member of a credit union, you may be able to join if you meet certain eligibility requirements, belong to a professional organization or you are affiliated with a local group or employer. Eligibility requirements vary by credit union, so you will need to contact the organization directly to learn more about becoming a member.
Tips for Getting a Car Loan With Bad Credit
While there may be many car loan options available to you even if you have a low credit score, you may have to deal with higher interest rates, as lenders will view you as a high-risk borrower. Keep in mind, however, that depending on the dealer, you may be able to use dealership negotiation tactics to get more favorable rates if you are financing through the dealer.
Fortunately, there are several steps you can take to improve your credit before applying for a loan. These include:
- Checking your credit score for errors. If your credit score is nonprime, subprime or very poor, you may attempt to improve it or remove any mistakes from your report before applying for a loan.
- Saving money for a down payment. If you put more money down before financing your car, you may receive a lower interest rate on the financing of your vehicle.
- Reducing your debt. Before getting an auto loan quote, attempt to reduce or eliminate as much debt as you can, as this will help to improve your credit score.
Where can people with bad credit look for a car loan?
Several options for car loans for people with bad credit are available through auto finance companies such as Capital One, Consumers Credit Union and Carvana. If you wish to apply online, for instance, Carvana may be an excellent option if you earn at least $10,000 per year, as there are no credit requirements you need to meet. Through Carvana, you can purchase and finance a vehicle through the same company.
If you are looking for a more traditional option, Capital One and MyAutoLoan assist borrowers with credit scores as low as 500. Capital One offers loans as low as $4,000, while MyAutoLoan requires you to borrow at least $8,000.
If you have a credit score of at least 525, however, CarFinance.com may be a better option if you need to borrow $7,500 or more. If your credit score exceeds 640, Consumers Credit Union and LightStream are other good options.
To get the best auto loans, what credit score do you need?
The minimum credit score for car loan offers typically varies by lender and whether you are purchasing a new vs used vehicle. However, the average credit score of borrowers who purchased a new car at the end of 2018 was 718, while the average credit score of customers who purchased a used car was 659.
An ideal credit score for car loan offers ranges between 661 and 850. Scores between 661 and 780 are considered prime and scores of between 781 and 850 are superprime. If you buy a new car with a prime credit score, you can expect to receive some of the lowest interest rates available. If you buy a used car with a nonprime credit score, your interest rates could be twice as high.
How can I apply for bad credit auto loans near me?
If you need to apply for a car loan, bad credit may decrease your chances of getting approval for a loan. However, you may be able to improve these chances by providing the lender with as much information as possible about your financial situation.
To apply for a loan through LightStream, for instance, you must be able to provide information about:
- Whether you wish to submit a joint or individual application.
- The purpose of the loan.
- Your ZIP code.
- Your loan amount and term.
- Your preferred payment method.
- Your full name, email address and contact information.
- Your Social Security Number (SSN), date of birth and driver’s license number.
- Whether you own or rent your home.
- Employment information, including your current work status.
While the car loan application process varies by lender, you will typically need to provide additional financial information to determine your eligibility for the loan. In most cases, you must provide the total amount of your monthly housing expenses, information about your retirement assets and the current balance of your checking and savings accounts.
Before you can get approved for a car loan with bad credit, you may need to provide the lender with additional information as proof of your eligibility. Unless you purchase and finance the vehicle from the same company, you will typically need to send your purchase agreement to the financial institution once you decide on a vehicle to purchase.