Frequently Asked Questions
If you have other questions, please contact us. We are happy to help with any additional information you might need.
There is not a set number needed to finance a car, and each lender will have different requirements. Car dealers and lenders will look at your FICO credit scores, which range from 300-800 (300 being low and 800 being high), to determine your qualification. Generally, the higher your FICO score, the easier it will be to finance and the more options you’ll have.
Your credit score and your ability to finance a car go hand in hand with the type of car you would like to purchase. If you would like a brand new car, you will more than likely need to have good to excellent credit to satisfy lenders. If you have poor to fair credit, a used or certified pre-owned car would be a good option to pursue. Used cars are more cost-friendly in general, and can be an easier way to make monthly payments and rebuild credit. When your credit improves, you can always look into refinancing or purchasing a newer car.
If you have a poor credit score or little to no credit, you may be required to have a cosigner on your loan. If that’s not a possibility for you, there are lenders who offer subprime auto loans or other loan programs that may accommodate your situation.
Though they can differ from dealer to dealer, there can be some requirements you’ll need to meet when applying for an auto loan. The basic requirements include: being at least 18 years old, having a valid driver’s license, and being a legal U.S. resident.
If you are applying for a subprime loan, there will be additional requirements you’ll need to meet. For example, you’ll need to provide proof of identity, income, residency, a working phone number, and references. The following are examples of what you may be asked to provide:
- A recent pay stub to serve as proof of income, including at least $1,500 to $2,000 of monthly pre-tax income from a single source.
- At least three years of employment history, with at least six months of those being on a current qualifying job.
- Proof of residence in the form of a utility bill that includes your name and address as it’s listed on your application.
- Proof of telephone in the form of a phone bill or cell phone contract. Pre-paid phones do not qualify.
- Six to eight personal references, including names, addresses, and phone numbers.
There is no standard for loan maximums. A lender will evaluate your application and determine the amount they are willing to finance. If you are looking for a bad credit loan, it’s important to visit a dealer who works with subprime lenders in order to get approved.
The three most important factors that will be considered for the amount you can finance are:
- Credit: Your credit score determines which loan tier or program you qualify for, including the interest rate range, maximum loan amount, and maximum monthly payment you can take on.
- Income: Your income affects the loan amount. Subprime lenders usually require borrowers to make a minimum of $1,500 to $2,000 per month before taxes.
- Debt to income ratio: Disposable income is established using your debt to income ratio, (monthly bills divided by your pre-tax monthly income). Your debt to income ratio provides lenders with an understanding of what you can afford and affects the loan amount and monthly payment you qualify for.
Most dealers and lenders require at least a minimum down payment, unless you have exceptional credit.
If you would prefer a dealer that doesn’t require a credit check or down payment, you need to visit a buy here pay here (BHPH) dealership. These dealers do all their financing in-house, and don’t work with banks or third-party lenders. The decision to finance a car is made by the dealership alone, which allows you to arrange financing and drive off the same day. Be aware that when shopping at BHPH dealerships, they typically stock older model, high-mileage vehicles, so you probably won’t find a new car on the lot.
It’s also important to understand that BHPH dealerships finance loans based on income, and they may or may not require a down payment. Regular payments are made either weekly or bi-weekly and most often in person. If payments are missed, they will be reported to the credit bureau and the car can be repossessed. Finally, payments made on time may not be reported, so it may not rebuild your bad credit.
Down payments can vary between dealers and individual situations, however, If you can afford it, a typical down payment is usually 20 percent of the vehicle’s purchase price. The down payment on a vehicle from a subprime lender is usually $1000 or 10 percent of the vehicle’s purchase price – whichever is less.
Regardless of how much you put down, making a down payment is one of the best things you can do when purchasing a vehicle. In addition to showing the dealer that you are an invested customer, a down payment will reduce the amount you finance on the car. The less you finance, the smaller your monthly payment will be, and the less interest you will pay over time.
If you currently have equity in a vehicle, it’s possible to use that equity toward the purchase of a car. When you bring your trade-in to the dealership, the dealer will assess the car’s value. If the car is owned outright, the value of the car may be put toward the purchase of your new vehicle. If you still owe money on your trade-in, then you may use the equity you have in the vehicle toward your new purchase.
If you would like to trade-in your equity on a bad credit auto loan, you will need to provide the following information to the dealership:
- Driver’s license
- Vehicle’s title
- Auto loan payoff amount and account information
- Vehicle’s current registration
- Quotes for the value of your car from at least two dealerships
If you are wanting to trade in your vehicle with negative equity, there are a couple things you should be aware of. The lender may or may not be willing to roll over the negative equity into a new loan, so you may end up paying the difference between what you owe and what the vehicle is worth. In addition, you are still responsible for covering the negative equity of your trade-in vehicle. So, you will have to pay for negative equity on top of the purchase price of your new vehicle, including the interest for both.
Yes! When you trade in a car with an existing loan, the money you get for the trade-in will be used to pay down your current loan first, then any remaining money can be used toward your new purchase. The dealer will take care of paying off the existing lender and obtaining the title of the car.
Leasing a car with bad credit can be difficult. Even if you are approved for a lease, it will most likely come with a high interest rate, among other restrictions, making it a fairly expensive proposition.
Make sure not to confuse a traditional car lease with a lease-to-own program. While in a traditional lease you have to return the car at the end of the lease contract, in a lease-to-own program you end up owning the car at the end of the “lease”. The latter option is similar to a buy here pay here loan, in that the dealer does the financing in-house and may not check your credit. At the same time, the dealer may not report your on-time payments to the credit bureau, therefore not improving your credit.
An alternative to leasing a car may be to apply for a subprime loan through a dealership who serves those in need of such a loan. A subprime loan is both easier to qualify for, and acts to improve your credit with each timely payment made.
It can be difficult to get approved for financing as a first time buyer with little or no credit without a cosigner. Make sure to do your homework before heading to the dealership, as every dealer can be a little different.
Check your credit reports: It’s important to know what your credit score is and what is on your credit report. If there are any inaccuracies on your report, you can dispute them or ask to have them removed. You’re allowed a free copy of your credit report every 12 months from each of the three major credit bureaus – Experian, Equifax, and TransUnion.
Budget: Make sure to budget for the car you want. It’s important to have a good down payment in order to keep your monthly payments and interest low.
Shop around: It always pays to shop around. You can rate shop with different lenders to see what programs and incentives they might be offering. Don’t feel like you need to go with the first lender who approves you.
Yes! In fact, there are cases when bad credit car buyers may be required to include a cosigner on their loan. A cosigner may even be able to increase your ability to get better rates for your loan.
The cosigner you use must meet the same criteria that the lender requires of you. If you are using a cosigner for a subprime loan, your lender will most likely require both you and your cosigner to meet the income, employment, and credit requirements.
When you use a cosigner, that person is agreeing to make payments for you should you not be able or willing to do so. As such, they are required to meet the minimum income standards to finance the auto loan. Also, even though they have no ownership right to the car, their credit can be directly impacted by the loan just as yours can.
Before choosing a cosigner, make sure that he or she has a full understanding of what they are agreeing to by helping you get a loan.
If you have bad or no credit, a lender may require you to include a cosigner to finance your purchase. If that’s the case, the cosigner will most likely need to have the following:
- Good credit: If you are struggling with your credit, the purpose of the cosigner is to guarantee payment based on their good credit. Typically, cosigners have a credit score of 700 or higher.
- Qualifying Income: The cosigner must be able to meet the minimum income and debt to income ratio standards that are set forth in the loan agreement. This is usually around $1500 to $2000 per month before taxes.
While it’s possible, it might take some time. Unless your repossession took place as part of a bankruptcy that has since been discharged, lenders typically will begin considering financing individuals once a year has passed since the repossession took place. The more time you allow for your credit to rebuild, the better position you’ll be in to finance a car.
There may be some subprime lenders who would be willing to consider financing a car with a down payment of 20 percent, however, it’s not necessarily common. You could also try checking with a buy here pay here dealership since they don’t run your credit, however, results will vary from dealer to dealer.
If you have been through a Chapter 7 bankruptcy and the bankruptcy has been discharged, you can most certainly obtain financing by going to the right dealer.
If you are going through a Chapter 13 bankruptcy, you can obtain financing by going to a subprime lender and providing the necessary paperwork to proceed with the financing process, even if your bankruptcy hasn’t been discharged yet.
The process for applying for bad credit financing begins with finding the right lender. Since most traditional lenders don’t work with buyers who have bad credit, it’s important to find a dealer or lender who offers bad credit car loans. Although these loans typically come with a higher interest rate, they are a great opportunity for the buyer to start rebuilding their credit.
Once you find the right dealership, you will sit down with a representative from the finance department and fill out an application. The dealer will then send it to one or more lenders that are appropriate for your situation. If you are approved, you will be given the terms of the loan agreement, including interest rate and maximum monthly payment. Based on those terms, you are free to choose a vehicle from the dealership’s inventory that both meets your needs and the terms of the loan. Once you’ve found the right car, you are free to go forward with the car buying process.
Complete our online loan request form, or contact us directly today!