Can Bad Credit Keep Me From Getting A Car Loan?
Depending on the lender you are applying to, yes, bad credit can prevent you from getting a car loan. However, if you are applying to lenders who specialize in helping borrowers with disputed credit, your credit score is only part of the larger equation.
Why bad credit can be a barrier
Your credit reports and scores are often the cornerstone of approving new credit, such as a car loan. Your credit score serves as an instant summary of your credit reports. higher credit score usually means you have good creditworthiness.
Creditworthiness roughly means how willing a lender is to believe that you can pay off the car loan. Credit scores are usually a big part of your creditworthiness, and the other major players tend to include your income and the amount of your down payment.
In some cases, even if you have enough income to prove that you can afford the auto loan, a bad credit rating might be enough to be turned down. However, there are subprime car lenders that help bad credit borrowers, and there are many other things they use to determine your creditworthiness.
How subprime lenders determine creditworthiness
Subprime lenders are third party lenders who have signed up with special financing dealers. To determine your eligibility for auto financing, they look at the many factors that determine your financial stability.
For a subprime lender, the most important factor in your creditworthiness is your overall stability. It means having a stable income, a job, a living situation and being able to make a down payment. Down payments increase your chances of completing the car loan and show the lender that you are able to save for big purchases – which bodes well for your creditworthiness.
Subprime auto loans can also improve your creditworthiness because they are reported to the credit bureaus. If you manage the loan well, your on-time payments improve your credit score, which together with a completed car loan gives you more credit opportunities in the future.
Auto loan requirements with bad credit
We’ve put together a list of common subprime auto lender requirements to prepare for when you’re ready to apply for financing. Keep in mind that each lender varies in their specific requirements, but this is a good place to start!
Common sub-prime financing requirements include:
- Income and employment history – Since you need income to pay off the auto loan, subprime lenders typically need around $ 1,500 to $ 2,500 in minimum monthly income (before tax). They also generally require a consistent work history. Most of the time, you need at least a year with your current employer and around three years of uninterrupted work history between jobs longer than 30 days.
- Stability of life and residence – Many subprime lenders require that you have lived at the same address for about a year. The longer you have lived in the same residence, the better your chances of qualifying for an auto loan.
- Debt-to-income (DTI) and payment-to-income (PTI) ratios – Your DTI ratio has to do with the income you have left over after paying your bills and car loan and insurance prepayments. Your PTI ratio is your income relative to the monthly payment and auto insurance. Lenders use these ratios to make sure that you are not going to stretch your finances too much with the car loan by making sure that you are not currently overburdened.
- Your credit score – Your credit score is the most important factor in determining your interest rate if you are eligible for financing.
- Advance payment – Subprime lenders typically require a down payment of at least $ 1,000 or 10% of the vehicle’s sale price. Providing a down payment is a requirement for almost all bad credit auto loans.
- Personal references – If you are eligible for financing, expect the subprime lender to ask you for a list of around five to eight references with full contact details. The only condition with this requirement is that your references cannot live with you.
- Work phone – Your lender may need to contact you, so they’ll ask you for proof that you have a landline or cell phone under contract. Proven with a recent phone bill in your name; Prepaid phones do not meet this requirement.
- Valid driver’s license – Used to verify your identity and allow you to drive the car out of the parking lot. The license cannot be revoked, suspended or expired, and it must show your current address.
Knowing what a subprime lender is likely to expect from you can be one of the trickiest parts of financing, and the requirements are likely to vary depending on where you are applying. The stipulations that we list are often the references for subprime auto loans. So, you can enter a special financial broker with some information behind you to avoid being blinded by the requirements.
Find a Special Finance car dealership
Now you know bad credit shouldn’t be the reason you can’t get a car loan because there are lenders ready to help you, but where are these subprime lenders? Well, we can help you too.
Here has Express auto loan, we have developed a network of dealerships that help bad credit borrowers and we want to find one in your area. To get in touch with a dealer who has bad credit loan options, complete our auto loan application form. It’s secure, no-obligation, and completely free – so get started now!