Bad Credit Auto Loans
Get a bad credit auto loan after bankruptcy
Bankruptcy doesn't mean that it's impossible to get an auto loan--in fact, it is only one of the elements that a lender looks at. It's important to remember that you have options. Even after bankruptcy, you can find a car and financing with a bad credit auto loan. There are three simple steps to begin working towards a bad credit auto loan.
- Check your credit score and do what you can to improve it. Looking at your credit score previous to applying for a bad credit auto loan will likely feel a little painful, but it's necessary to see what a bad credit auto loan lender will be seeing. Pay attention to your auto loan history, since a lender will often weigh that heavily in their decision.
- Save enough money for a down payment in preparation for your loan. Bad credit auto loans usually require down payments, and the larger the down payment is, the less risk the bad credit auto financing lender is taking. You may be able to trade in a vehicle to put money towards your bad credit auto loan.
- Get pre-approved before you visit a dealership. Being pre-approved for bad credit auto financing gives you leverage and allows you to understand what cars you can afford. If your bankruptcy is recent and your credit hasn't been rebuilt, your bad credit auto loan rate may be a little higher.
Don't be afraid to approach lenders about a bad credit auto loan, and don't assume that only "buy here pay here" dealerships will work with you. Feel free to shop around and find a loan with terms that work well for you. Then pay your loans on time, monitor your credit score for six months, and consider refinancing your bad credit auto loan at a lower rate once your credit score has improved.
Questions to Ask Dealers About Your Bad Credit Auto Loan
A bad credit score won’t necessarily cut you out of the auto loan process. You can still qualify for a loan and buy a car with poor credit; but the payments, interest rate and terms will vary. Before you walk into the dealer, arm yourself with a list of questions to ask about your bad credit auto loan.
What is the minimum down payment?
Just because a buyer needs bad credit auto financing doesn’t always mean they’ll need a high down payment. Despite the traditional advice of spending 20%, an Edmunds analysis found the average down payment on a car was actually 10.4%. Minimum down payments will vary depending on your dealer and what type of bad credit auto loan you need. (1)
How high is the interest rate?
Before signing your loan, ask dealers about the type of interest rate attached to your bad credit auto loan. Remember that your interest rate on a bad credit auto loan affects your monthly payment, as well as the overall amount you'll ultimately pay. For example, if you have poor credit, expect to pay as much as 12.9 percent depending on your credit score, down payment and other financing factors.
What are the terms?
Auto loans can vary in length for buyers with bad credit auto financing, but usually run thirty-six months. It's possible the terms will be shorter or a little longer depending on your dealer and any negotiations that take place over your bad credit auto loan financing.
What kind of car will I qualify for?
It’s not uncommon to hear stories about people with bad credit auto financing being shown a different selection of cars than other buyers. Ask in advance if you will have any vehicle restrictions and what type of car you can expect to qualify for.
Can I get an auto loan with a repo?
Getting a car repossessed isn't an easy thing to go through. Credit scores usually drop between 60 and 240 points--people with higher credit scores will lose more points--and repossession stays on your credit record for seven years. However, you can still qualify for bad credit auto financing by following these steps.
Prepare to apply for a bad credit auto loan. Check your credit score and review the damage. You need to know what a bad credit auto loan lender will see when they consider your loan application. Pay your bills on time and settle any balances, especially if you still owe money on your previous auto loan. Then bring together what money you can for a down payment on your bad credit auto loan.
Shop around for the best deal. Look to different lenders for their rates on a bad credit auto loan. Keep your options open and don't restrict yourself. A high down payment or a co-signer will make it easier for a bad credit auto financing company to approve you, since it means they'll be taking less risk on you.
Be realistic about the car you want. Try to get pre-approved for a bad credit auto loan so you can set a budget for yourself before you go to the dealership. Alternatively, you can work with an in house bad credit auto loan lender. Bad credit auto loan financing from a dealership is usually more likely to approve someone with bad credit or a recent repossession.
Pre-Approvals vs Real Approvals
When shopping for bad credit auto loans, the best course of action is usually to get pre-approved before going to the dealership and then looking into other lenders later on.
Pre-approvals are generally considered better than real approvals for bad credit auto loans because you can shop around, you will have more leverage at the dealership, and you will be able to plan out your purchase. You will already know what your bad credit auto loan rate and payments are, and the fact that you have a bad credit auto loan in hand will help you negotiate with other bad credit auto loan financing companies.
The process for getting approved for a bad credit auto loan is the same between pre-approvals and real approvals. Either way, you will need to have proof of your income or collateral, and the bad credit auto lender will pull your credit before approving you. It is a good idea to get a copy of your credit report before going in so you can see what the bad credit auto lender will be looking at. Some bad credit auto lenders, namely banks and credit unions, will also ask for payment stubs, copies of your last tax return, and pay stubs.
Pre-approval bad credit auto loans are just as accurate as real, post-purchase approvals for bad credit auto loans. For pre-approvals, your information will be verified at the dealership to confirm a real approval amount. As long as your income and other information is entered correctly for the pre-approval, many companies will approve you and give you financing terms in house. Because they are equivalent, it is usually better to get pre-approved for a bad credit auto loan so you can always get a real approval afterwards and have more options.
How to Get an Auto Loan with Bad Credit
A bad credit score and poor history can make auto financing miserable for some, but it isn't impossible for everyone. Unfortunately for most Americans, buying a car with cash is just not an option, leaving some consumers behind a road block caused by bad credit. Some reports show that more than 50 percent of consumers are burdened with subprime credit (1).
If you're in the market for a used car but don't have the credit for a normal loan, here are several ways to secure a bad credit auto loan and buy the car you've always wanted.
Sub-prime lenders specialize in bad credit auto loans and generally have a high approval rate. Interest rates will typically be higher, but if you always make the monthly payment a sub-prime loan can improve your credit over time. Sub-prime lenders often finance in-house as well, so you don't have to go outside the dealership for a loan.
Credit unions are typically more consumer-friendly than banks and will work with members (if you have a checking or savings account with one) to set up bad credit auto financing. And if you're not a member, signing up for a number of bundled services could help secure a bad credit auto loan as well.
If you have a family member or significant other with good credit, and they're willing, they can sign on a bad credit auto loan to help secure a better interest rate. But remember, if you don't make your monthly payment it will hurt their credit as well as yours.
Some dealerships will offer bad credit auto loan rates for consumers who struggle to find financing elsewhere. This is a good place to handle a bad credit auto loan and purchasing (along with service and warranty) under one roof.
When you consider the options, there are just as many opportunities to secure a bad credit auto loan as there are a loan for consumers with good credit.