In the market for a new ride? If you have less than perfect credit and need to finance the purchase, it may not be as simple as walking into a dealership or a bank, getting a personal loan, and driving off the same day in your new ride. You’ll need to do some research to find lenders that can assist you.
But before you commence the search for a loan, there are other steps you can take to alleviate the stress associated with finding a loan with bad credit and increase your odds of getting approved. Read on to learn more.
Step 1: Check Your Credit Rating
Lenders want to be sure you can comfortably afford to make the loan payments, which is why they request documents to verify your income. But what’s just as significant to them is your creditworthiness as it conveys the likelihood of you defaulting on the loan.
A higher credit score is generally indicative of a prospective borrower that can responsibly manage credit. In turn, they are usually given the most competitive financing offers because they don’t pose much of a risk to the lender.
But since your credit score is in the trenches, you more than likely won’t qualify for the best interest rates. However, there are still several lenders that may be willing to extend an auto loan to you. So, it’s important to know where your credit score stands to ensure you meet the qualification criteria.
Furthermore, it may be worthwhile to take small steps towards rebuilding your credit to possibly lower the interest rate you receive and minimize the down payment that may be required by the lender. And you definitely want to rectify any errors that may be dragging your score.
How to Access Your Credit Report
Visit annualcreditreport.com to download a free copy of your credit report from the three credit bureaus- Equifax, Experian, and TransUnion. You’re entitled to a free copy annually from each bureau, and it’s a good idea to request all three at once as not all reports contain the same information.
How to Access Your Credit Score
To view your credit score on annualcreditreport.com or on the credit bureau’s websites, you’ll have to pay a nominal fee. You may also be able to do so via your bank’s online portal or on credit card statements for free. And while it’s a good idea to know where you stand, it’s a good idea to focus on what’s in your report as it’s the basis of your credit score.
Step 2: Determine How Much You Can Afford
When shopping for a new ride, the lender may convince you to go for the most expensive car you qualify for. But this doesn’t mean you actually afford it so don’t get sucked into this trap.
A better idea: evaluate your current budget to gauge how much disposable income you have to allocate towards the car payment, insurance, gasoline, maintenance, and auto repairs as the need arises.
Step 3: Research Lenders
Even with less than perfect credit, you’ll find that there are scores of lenders that cater to consumers like you. So, you should shop around to see what you qualify for as interest rates could vary drastically from one lender to another.
Worried about the impact multiple credit inquiries will have on your FICO credit score? Don’t be. For starters, most online lenders allow you to get financing quotes by using a soft inquiry to evaluate your creditworthiness and extend a prospective offer to you. Or you can use an online marketplace to explore several options at the tap of a fingertip. These online tools also run soft inquiries, which do not impact your credit score.
And if you decide to only consider brick-and-mortar lenders, multiple inquiries will only be counted as one as long as you select a loan product within 45 days. Why so? Well, the FICO credit scoring model recognizes this as rate shopping and doesn’t penalize you for exploring your options.
Step 4: Narrow Down Your Loan Options
Once you have several loan offers in hand, narrow down your options by analyzing the following:
- Interest Rate: Ultimately, this will determine how much more than the principal you’ll pay over the life of the loan.
- The Flexibility of Loan Offerings: Does the lender enable you to tailor the loan term to best suit your financial needs?
- Applicable Fees: Are the fees comparable or more excessive than what is assessed by others in the industry?
- The Lender’s Reputation: do they have a track record of helping credit-challenged consumers finance their vehicles without all the red tape?
- Better Business Bureau (BBB) Accreditation and Rating: is the lender accredited by the BBB? If so, what is their rating?
- Customer Reviews: how is the lender perceived in the eyes of customers? Are past borrowers singing their praises or mostly complaining about their shortcomings?
Step 5: Submit a Loan Application with the Top Three Lenders
Instead of submitting a completed application with one lender, apply with three so you’ll have options to choose from.
What You’ll Need
When applying, be prepared to provide the following to the lender to obtain a firm loan offer:
- Personal identifying information (includes a copy of your driver’s license or state-issued identification) to prove that you are whom you say you are
- Social Security number
- Employment data (employers name and phone number in case the loan officer need to call to verify your employment)
- Proof of income (last paystub if employed and copy of prior year tax return if self-employed)
- Most recent bank statements
Step 6: Negotiate and Finalize Your Top Loan Choice
And now for the fun part: finalizing the loan. Before signing on the dotted line, review the contract from top to bottom and request clarity on any portion that doesn’t quite sit well with you. Once you’ve completed this final step, you’re ready to pick out your dream car, hop in the driver’s seat, and take a spin on the highway.
Top Bad Credit Auto Lenders
Here are some of the top bad credit auto lenders in the industry that are definitely worth considering:
Capital One Auto Finance
Capital One Auto Finance extends auto loans to consumers with credit scores as low as 500. They partner with over 1,000 lenders throughout the US, so you shouldn’t have a hard time finding a vehicle that fits your style and budget.
As long as the vehicle is at least $4,000, is a 2008 model year or older, and does not have more than 120,000 miles, you should be good to go. Use the Auto Navigator tool to get pre-qualified for financing or call 1-800-689-1789.
Carvana is an online auto dealer that not only serves consumers with credit challenges but makes it convenient to purchase a new car. You can complete the entire application process online and have your vehicle delivered to your doorstep in just a few days.
They don’t have a concrete minimum credit score requirement, but your annual income must be at least $10,000. Furthermore, past bankruptcies may not prevent you from qualifying, but active bankruptcies are automatic grounds for denial.
You can apply online in under five minutes. If approved, your loan offer is valid for up to 45 days.
Prefer to shop and handle your auto loan financing all under one roof? DriveTime lets you do just that as they have an in-house financing department at hundreds of dealerships throughout the nation with an inventory of well over 15,000 used vehicles.
Even better, your chances of getting approved are very high if you have a steady source of income since their loans are designed for those with bad credit. But keep in mind that the interest rates are a little on the steep end, and you’ll more than likely need a downpayment to secure your ride.
But if your credit score is really low and you don’t have many options, DriveTime will more than likely say yes when everyone else has said no.
To apply for financing, call 1-888-418-1212 or complete the online application that only takes a few minutes of your time. Upon approval, you can head directly to the dealership so they can finalize your documents and get you rolling in a jiffy.
RoadLoans is another direct auto lender that caters to consumers with credit challenges and past bankruptcies. They work with 14,000 lenders nationwide, and auto loan proceeds can be used for a new purchase or refinance.
Call 1-888-276-7202 to get prequalified or submit the online application to determine if you qualify for loan offers.
Auto Loan Search and Comparison Tools
You can save yourself the hassle of applying with several lenders by using an auto loan search and comparison tool. Most have very brief questionnaires and will shop your information around to secure the best loan offer without you having to lift a finger.
Auto Credit Express
With over 20 years of experience serving credit-challenged borrowers, Auto Credit Express is an online lending search tool available to residents of the US and Canada. They are also an A+ rated and accredited BBB company, and may be able to find a match for you, even if you’ve recently filed for bankruptcy.
Lenders in their network offer loans for both new and used vehicles. You can also use the loan proceeds to refinance your existing vehicle. Loan terms vary by lender and a downpayment may not be required to get approved.
You can complete a short online questionnaire or call 1-855-439-0814 to determine if you qualify for auto loan financing from a lender in their network without impacting your credit score. It only takes a few minutes to receive a response, and there’s no obligation to move forward with the loan application.
Blue Sky Auto Finance
Blue Sky Auto Finance is another online loan search and comparison tool designed to help you find an auto loan if you have blemished credit or have recently filed for bankruptcy. They have over 15 years in the industry and have served thousands of consumers to date.
Loans cap out at $30,000 with 72-month payment terms, and their interest rates start as low as 3.99 percent. Loan proceeds can also be used for refinancing your existing vehicle.
To apply for consideration without impacting your credit score, call 1-800-BLUE-SKY or complete the three-step form found online. If there’s a match, you’ll be presented with four lenders and can choose to continue with the loan offer that best suits your needs and financial situation.
Don’t quite have enough to make a hefty downpayment? With a loan from a lender in the CarFinance.com network, it may not be necessary to put any funds on the table to secure a loan. And all you need is a FICO score of 525 and a steady source of income to have a shot at being approved.
Do you have monthly earnings of at least $1,800 and a FICO score of 500 or higher? If so, you may be in luck with a lender from the myAutoLoan network. They offer auto loans on vehicles with a sales price of $8,000 or more that are up to 10 years of age. You should also know that mileage cannot exceed 125,000.
You can apply for consideration online and receive a decision right away. Similar to other auto loan search and comparison tools, there’s no pressure to select a loan offer if they find a match.
The Bottom Line
Getting an auto loan with bad credit could mean that you’ll pay more in interest. But the upside is with so many auto lenders catering to consumers with bad credit, you should be able to find a lender that can assist you.