How Bad Credit Car Loans Can Help You
You shouldn’t be denied an auto loan because you have bad credit. You should apply for a bad credit car loan if you need a vehicle but have credit problems. It boosts your chances of getting approved, and it can be more affordable than other types of auto loans. Plus, it can even improve your credit score!
Bad credit auto loans vs. traditional auto loans
If you have poor credit, you should find a lender who will work with your situation. There are not all auto loan lenders that can help people with bad credit, and those that can’t can’t be found at every dealership. Generally, a Poor credit car finance must be obtained from a subprime lender. Rather than through a bank or credit union, these lenders are associated with special finance dealers.
Subprime lenders can help because, unlike traditional direct lenders (banks and credit unions), they consider you for an auto loan based on more than just your credit score. Traditional lenders at financial institutions tend to base loans simply on good or bad credit and the majority of their loans tend to go to borrowers with the highest credit scores.
You need to meet certain requirements and stipulations when going through a lender with bad credit. This shows that you live and work in a stable environment, that you make enough each month to cover the payments, and that you are willing to put some skin in the game.
Lenders have different requirements, but you typically need to provide proof of income, proof of residence, and proof of a working telephone, as well as a valid driver’s license, personal references, and a down payment.
Bad credit auto loans vs. BHPH dealers
A buy here pay here (BHPH) dealer is one option for getting a bad credit auto loan. This type of dealership offers in-house financing, meaning the dealer is also the lender. Third parties aren’t involved in the process.
BHPH dealerships are popular because they don’t rely on credit scores for approval, so many people with bad credit or no credit can take advantage of them. There aren’t always credit checks at BHPH lots, but when there are, sometimes the lack of credit checks translates to a higher interest rate and larger down payment.
Because BHPH dealers do not check credit, you may find that they charge higher interest rates than other bad credit lenders. Poor credit means that your interest rate is likely to be higher than someone with good credit, but many BHPH lots are at the top of the scale.
Furthermore, the amount of your down payment is usually determined by the price of the vehicle you choose. Auto Loans Offer More Options
Getting a bad credit auto loan offers more options
A bad credit auto loan from a subprime lender may be the best option if you have the time to shop for your vehicle. You have a better chance of finding a new or used vehicle at a dealership that has special financing arrangements with these lenders. This often includes certified pre-owned cars, which are newer, low-mileage used vehicles covered by some form of manufacturer-backed warranty.
You may also expect your interest rate to fall below the rate you might find at some BHPH lots. A down payment is still required, but subprime lenders typically ask for $1,000 or 10% of the sale price, whichever is less.
