Driving a car is a daily necessity for most people, especially if you don’t live in a large city with reliable transportation. Unfortunately, a vehicle is also one of the most expensive purchases you’re likely to make, forcing many people to take out an auto loan rather than saving up cash to pay upfront. So what do you do if you have bad credit and need a new car?
While some lenders may not approve your application, there are several places you can turn for a loan, even with bad credit. Here are our top picks of bad credit auto lenders for 2017, along with some tips on how to get the best loan possible.
Table of Contents
- 1 Best Auto Loans for Bad Credit
- 2 Does having bad credit affect your car loan?
- 3 How can you get the best auto loan with bad credit?
Best Auto Loans for Bad Credit
Auto Credit Express
Auto Credit Express specializes in car loans for applicants with bad credit, no credit, and even those who have a bankruptcy in their past. They’re also known for approving loans for older vehicles that have high mileage, whereas traditional lenders typically turn down these types of requests. Another perk is that you can get approved with as little as zero or $500 down payment, so you can get a car loan even if you don’t have lots of cash on hand.
You will, however, need a steady income to get approved, with a monthly pre-tax salary of at least $1,500. Expect to be asked several questions about your employment situation, like how many hours a week you work, how much overtime you get, and other specifics. But don’t worry, you won’t be bogged down with endless input fields; in fact, the application only takes three minutes to complete online.
If you’re looking for a large bank that accepts applicants with bad credit, then Capital One is a great place to start. The car itself, however, will need to meet a few basic standards in addition to your own application. For instance, the loan amount should be within $4,000 and $40,000 and the car can be no older than a 2007 model. The mileage must be under 120,000, you can only use the car for personal use, and you must utilize a participating dealership for your purchase.
There are also restrictions on the model you can buy: Oldsmobile, Daewoo, Saab, Suzuki, and Isuzu brands are out. You also can’t finance loans for purchases from private sellers or a lease buyout. For your personal application requirements, you must take home between $1,500 and $1,800 in monthly pre-tax income, depending on your credit history.
Carvana is actually an online dealership that provides subprime financing for borrowers. You shop online for the make and model vehicle you’d like, and it will actually be delivered to your door. You can even do a vehicle trade in. Since the car may ship from any location in the U.S., it’s not possible to do a test drive or even inspect the car in person before purchasing.
However, you can often find low mileage used vehicles at competitive prices with pictures online of the actual vehicle. Then, you can finance the car directly through the website. One helpful perk is that you can filter cars by your total monthly budget, not just the sales price. You can also adjust variables like down payment or term length to figure out the best deal for your price point.
You can purchase either a new or used car with Road Loans, and can even use them to refinance an existing auto loan. They accept any credit type and you receive an application decision within minutes. It’s also a good option to consider if you want to buy a car from a private party rather than a dealership. You’ll need a vehicle inspection conducted and the car must be no more than 12 years old with 100,000 miles or less for private party loans.
Most customers have a positive experience regardless of loan type. TrustPilot gives RoadLoans four out of five stars based on user reviews. You can also access a wealth of free tools, including smartphone apps, finance calculators, a dealer network, and credit score tips.
Blue Sky Auto Finance
Rather than actually making loans, Blue Sky Auto Finance allows you to fill out a single application and in turn get connected to several lenders. The website’s focus is on bad credit borrowers so you typically don’t have to worry about not receiving any loan offers. To get the most options, you’ll need a minimum credit score of 550.
If your score is below a 652, you’ll need to provide proof of income equalling a minimum of $1,800 per month. However, they do take applicants who don’t have any credit at all or have had a bankruptcy in the past. You can get a loan of up to $30,000 and some deals may even require no money down. Blue Sky Auto Finance works with hundreds of lenders and can often get a loan in as quickly as a day.
Does having bad credit affect your car loan?
Yes, bad credit affects just about anything you do involving borrowing money, including getting a car loan. There are several ways your credit score affects the terms of your auto loan. Perhaps the most important part is the interest rate. That’s the amount of money you’ll pay each month on top of the principal loan amount.
The lower your credit score, the higher your interest rate, and the higher your monthly payments. You’ll also be limited as to how much money you can actually borrow. If you have a poor credit score, it’s unlikely that you’ll qualify for a high dollar loan amount. Your car search will be limited to the loan amount you’ve qualified for, whether you think you can afford it or not.
Another side effect of having bad credit is the amount you’ll of money you’ll need as a down payment. While some bad credit lenders specialize in loans with a small or zero down payment, many will require one. And if you want to buy a more expensive car than the loan you qualify for allows, you’ll need to make up the different with more money down.
Finally, the amount of time you have to repay your loan might be limited because of your credit score. Some lenders might make you have a shorter repayment plan so they get their money back faster. While you may save interest over time, that could result in higher monthly payments.
How can you get the best auto loan with bad credit?
Even with bad credit, you can still follow a few tips to get the best deal on your auto loan. Just as with any other major purchase or investment, it helps to take your time with the entire process from start to finish. A few simple steps can make a world of difference in the type of loan terms you receive, so pay careful attention so you can minimize your monthly payment.
Review Your Credit Report
Before you start car shopping, access a free copy of your credit report and review it for accuracy. This document has a huge impact on your ability to borrow money for a vehicle; after all, the information listed contributes directly to your credit score. Even if everything is accurate, you need to know exactly what information the car salesman or lender is looking at when reviewing your financing application.
While you certainly hope you’re dealing with a trustworthy individual, many dealership finance managers use pressure tactics that are based in deceit. If you don’t know your own credit history, you don’t know if any allegations made against you are actually true, and you could end up with a higher interest rate. Even if you are dealing with a reputable lender, understanding your credit report can help you explain past negative items, like late payments due to temporary unemployment.
Create a Budget Based on Your Current Finances
Once you’ve reviewed your credit history, it’s time to figure out your budget. You need to look at this from two different perspectives: the total amount you want to pay for a car and the total monthly payment you want to pay each month. The two are related, but you should come to each amount separately.
For instance, both the amount of money you pay for a car that’s financed and your interest rate contribute to your monthly payment amount. But even if you can afford a certain amount for a car, that maximum doesn’t mean it’s the right amount for every single vehicle. Make sure the sales price accurately reflects the condition and mileage of the specific car you’re considering. Find your target monthly budget by playing around with some auto loan calculators and inputting different interest rates and price points.
Negotiate the Purchase Price
When you have bad credit, you may not be able to change your interest rate, but you can negotiate the purchase price of the vehicle. The actual sales price doesn’t have anything at all to do with your credit; in fact, your car salesperson shouldn’t know anything about your credit history. To help lower your monthly payment, especially if you know you’re getting a high interest rate, try a few simple negotiation tactics.
First, try shopping at the end of the month when the sales team is trying to hit target numbers. Also, try to go during off hours, like on a weekday morning. When there are less potential buyers milling about the showroom, the sales staff is much more likely to make an effort to seal the deal with you. You can also shop around several dealerships to compare prices and use competitors as leverage for a better deal.
Avoid Unnecessary Upgrades
Even if you’re an amazing negotiator, remember that car salesmen are trained to make a deal that’s good for them. That involves using all sorts of psychological tricks to get to the number they want. An easy way for them to do this is through upgrades, even when you’ve successfully negotiated a better sales price.
Whether it’s a custom paint color, seat warmers, a leather interior, or even a warranty plan, it’s easy to get sucked into tacking on a few thousands dollars here and there. And that can quickly derail your plans to stay on budget for your monthly car payment. Avoid this scenario altogether by adopting a strict no-upgrade policy before you enter the dealership. Paired with a maximum purchase price in mind, you’ll safely meet your financial targets, even with bad credit.
Carefully Review Your Loan Agreement
Whether you get a car loan through a bad credit lender or straight from the dealership financing department, make sure you read all of the details before signing anything. It’s not safe to assume that everything is boilerplate; in fact, there are many details you should confirm before moving forward with the loan. First, double check that all of the information is accurate, including the sales price, interest rate, applicable fees, and even the make and model of the car.
It’s also important that you don’t fall victim to “yo-yo” financing. This happens when you “purchase” the vehicle without finalizing your loan with the dealership. Shortly afterwards, you’re notified that your financing actually fell through and you’re required to sign a contract at a higher interest rate. Get everything finalized and confirmed before you take the car off the lot.
Use Your Car Loan to Repair Your Credit
When you do finalize the terms and conditions of your auto loan, commit to being a responsible borrower. Repaying an installment loan is a great way to repair your credit, and it’s simple to do. All it takes is an on-time payment each and every month. Those monthly payments are generally captured on your credit report, so you’ll start to see a noticeable difference over time.
Of course, late payments will hurt your credit score, in addition to accruing you expensive fees. But as long as you stay on top of your payments you can really benefit from an improved score. In fact, you may even decide to refinance your car loan for a better interest rate.