Knowing where to go to get your next car loan is important to avoid being refused unnecessarily. There are different types of lenders for different borrowers, so choosing the one that meets your needs is essential. If you’re struggling with bad credit, the loan process doesn’t start with choosing a vehicle, but with the right lender.
Types of auto loans
When you have poor credit, it can be more difficult to get approved for big ticket items like car loans. However, if you are working with the right kind of lenders, they have processes in place to help you get a car loan. Because getting your car loan off on the right foot is so important, you need to know where to start.
Generally, there are three main types of financing you can get for a car loan, depending on your situation and your needs:
- Direct loans, what most people think of when they talk about traditional loans, come from banks, credit unions, or online lenders. These loans are generally reserved for borrowers with good credit scores. If your credit score is around 660 or less, you may have better luck with a different type of auto loan.
- Lenders at risk are intended for borrowers who are not eligible for a direct loan. Those lenders know that people who have credit problems problems are more than just a credit score and use as much personal and financial information as possible to help them get a better picture of your situation. These lenders are sometimes referred to as bad credit lenders, and they can work with people in many different credit situations. However, subprime auto loans are indirect loans and you can only get one by applying to a special finance dealership.
- Buy here pay here resellers are for borrowers who are unable to qualify for a subprime auto loan. These dealerships specialize in in-house financing and are not as prone to checking your credit as other types of lenders. This makes it a good choice for second chance funding if you’ve already been turned down. However, this type of car loan may not be as useful as you hoped. The price of skipping the credit check can really take its toll, and in some cases you can end up paying a lot more than what you bargained for for a used vehicle here.
As you can see, there are many lenders that you can choose from. Your personal situation and what your credit reports say about you will dictate the next step.
Your credit score is important
To know what type of auto loan is best for your credit situation, you need to know your credit rating and what is on your credit reports. You can stay on top of your credit score by signing up for a credit monitoring service, or find it through your credit cards, bank, or credit union, many of which provide it for free.
In order to see what is impacting your credit score, you should also get a copy of your credit reports. Until April 2021, you have the right to get a free copy of your credit reports from each of the three national credit bureaus once a week. You can request them by visiting www.annualcreditreport.com.
Knowing what’s on your credit reports lets you know what lenders are seeing, which gives you a bargaining chip if they are trying to determine your credit for you. If you know your credit score, you also have the power to research possible interest rates so you know what type of deal you might qualify for. Your credit score is the most important factor in determining your interest rate.
If you find that your credit score is low, don’t assume you’re not in the hunt for a good deal. There are many options for getting a car loan if you are working with the right lenders for the job.
The Bad Credit Auto Loan Process
Applying to a subprime lender is often the best choice for consumers with credit difficulties, but the process may seem a little different than you might imagine. Instead of choosing a particular vehicle and then finding financing for it, you first need to find a dealership with the right loan resources.
Before you go to the dealership, it’s important to put together all the documents you need to prove to the lender that you meet their requirements for a car loan. Although the details may vary by lender, all subprime lenders have similar qualifications that you must meet.
These include proving that you qualify for income and employment, have residential stability, and are ready to invest in your own car loan success.
Generally, proving that you meet these requirements means providing the following to the dealer:
- Check heels – Lenders should know that you are earning enough money to pay off a car loan. They therefore require proof of income with a computer generated check stub showing cumulative income for the year. Typically, subprime lenders ask you to earn around $ 1,500 to $ 2,500 per month before taxes.
- Utility bills or bank statements – These are used to prove your residency. They must be in your name and correspond to the address you currently live in and that you provided on the application.
- Telephone bill – Lenders need to be sure they can contact you when they need it, so they require proof of a landline or cell phone contracted in your name.
- Personal references – Most lenders always ask you to provide a list of around five to eight personal references with full contact information.
- A deposit – This shows that you are ready to have some skin in the game. The amount you will likely need can vary, but many subprime lenders charge a minimum of $ 1,000 or 10% of the vehicle’s selling price.
- Driver’s license or state card – Some lenders only require state ID, but you need a valid driver’s license to drive the car. Any form or ID you use must be valid, which means it is not suspended, expired, or revoked.
Once you provide these documents to your dealership, they act as an intermediary between you and the lender. The dealer reviews your documents and your application, then presents them to the lender for approval. If your financing request is approved, the lender notifies the dealer of the maximum monthly payment for which you are eligible.
The dealership then assembles a list of vehicles in inventory that match the payment guidelines provided by the lender. You can take a test drive and choose a car from among them, fill out your paperwork, make the necessary upfront payments (down payment, taxes, title, license, and documentation fees), and pick up your vehicle.
Ready to start?
Now that you know that you have options for getting an auto loan, you need to decide which type of lender is best for you. If you are having credit problems, a subprime lender may offer you the best opportunity for a car loan. But, knowing where to find these lenders can be difficult.
Subprime lenders are indirect lenders who only operate through special finance concessionaires. It can be hard to tell these dealers apart from the rest, but we know where to start! Here has Auto Express Credit, we work with a nationwide network of special finance dealers who team up with the lenders you are looking for.
To be matched with a dealer in your area, complete our quick auto loan application form. Let us help you take the hassle out of finding a loan, start now!