Whether due to ignorance of youth or poor financial management, bad credit takes a toll on your ability to move ahead in life. One of the areas where bad credit creates doom and gloom is finding affordable financing for major purchases, like a new or used car, truck or SUV. Lenders want to know that you’re able to afford the monthly payment and make that payment on time each month.
With a poor credit history, you may feel like finding a lender willing to give you enough funding to get a new vehicle is anything but easy. Fortunately, there are a number of auto loan options for bad credit – you simply need to know what’s available.
1. Online Lenders
A handful of online auto lenders make the possibility of financing a car purchase with poor credit a reality.
Auto Credit Express®
One of the top online lenders is Auto Credit Express®, or ACE, which works primarily within the sub-prime auto lending business; meaning the company focuses its time and energy on providing loans to individuals with less than perfect credit.
The organization represents one of the largest special finance outlets for vehicles, touting the ability to approve borrowers who have been through bankruptcy, a repossession, or have little to no credit history.
– $0 Down Payment
Auto Credit Express works with a large number of dealerships and outside lending partners to provide auto financing with little or no down payment requirements.
– Minimum Income and Credit Score
To qualify for a bad credit auto loan with Auto Credit Express and similar online lenders, borrowers must have a gross monthly income of at least $1,500 when their credit score falls below 625.
– Reposession
While repossession does not result in an automatic decline for a new loan, borrowers typically cannot have a repossession on their credit history within the last year.
– Bankruptcy
Special documentation is required for individuals who have gone through bankruptcy. Interest rates and terms vary depending on the quality of your credit and the amount financed.
2. Banks and Credit Unions
You may think you’re out of luck when it comes to getting financing from your bank or credit union, but that is not always the case.
Some traditional lenders are willing to take on additional risks when providing auto financing because the ability to recoup losses should the borrower fail to pay is simple (repossession). However, both banks and credit unions may impose higher interest rates or shortened terms for a new auto loan if you have poor credit.
Capital One Vehicle Financing
One leader in bank financing for auto loans is Capital One. In addition to allowing individuals with bad credit to apply for a new car loan, the bank offers a great deal of educational material meant to boost your overall understanding of credit and how it should be used.
When applying for a new auto loan with Capital One, you must be buying a car that is less than 10 years old with fewer than 120,000 miles and at least $4,000. As with other lenders, your final interest rate and repayment term will depend heavily on your personal credit history and the loan amount.
3. Dealership Financing
The most common place people with poor credit go to get auto financing is the dealership. Most dealerships partner with outside lenders to provide financing options for borrowers with poor credit histories or scores, and some even market directly to this audience.
It is important to remember that while dealership financing is readily available to most buyers, the terms and conditions inherent to the deal often end up benefiting the dealership, not you as the borrower. Take the time to understand any conditional items in your new loans, and be wary of taking the first offer given to you. Dealership financing has the potential to cost a pretty penny for those with bad credit, based mostly on the convenience factor.
Final Thoughts on Obtaining an Auto Loan with Bad Credit
Not all is lost if you have bad credit and are also in the market for a new vehicle. To ensure you’re getting the best financing for your specific situation, shop around before heading to the dealership to finalize your purchase. Check with online lenders, your local bank or credit union, and ask your dealer what they can offer given your financial history.
Auto loan options for bad credit exist, but it is necessary to do your homework before signing on the dotted line.
