How to Lease or Buy a Car With Bad Credit
No specific credit score automatically qualifies a borrower for an auto loan. However, having a higher score increases a buyer's chances of getting their car loan approved. Auto loans for bad credit are available but can be expensive.
That's why we recommend borrowers with bad credit take steps to improve their scores before car shopping. Doing this early on can lessen the financial burden when applying for an auto loan. Buyers who can't delay their car purchases may also consider buying lower-priced, reliable used cars that meet their needs but require them to borrow less.
Auto Loans Are Possible With Bad Credit
Getting a bad credit auto loan is possible but requires some extra effort. No single number defines a bad score, especially regarding a car loan. Still, if the borrower's credit is below the mid-600s, they can expect higher interest rates and more difficulty securing an auto loan.
Because most lenders consider several factors when approving car loans, borrowers with bad credit scores can get auto loans. Lenders may also require these borrowers to supply more information regarding their finances, make bigger down payments, accept higher interest rates, or choose less expensive cars.
What Is Considered Bad Credit?
Bad credit for an auto loan is generally defined as a credit score in the mid-600s or below. The scoring tiers of most credit scoring models differ, allowing more flexibility in what's considered to be a bad credit score. Auto lenders also use different credit scoring models specific to the auto industries they affiliate with.
That's why auto lenders consider several factors alongside the borrower's credit score when deciding whether to approve auto loans. These may include the borrower's:
- Payment history
- Length of employment
- Proof of steady income
- Debt
- Loan amount
Therefore, even if the borrower has a bad or lower credit score, they may still get their auto loans approved if other factors are in their favor.
How to Apply for a Car Loan
Getting a car loan with bad credit can be challenging and often involves several application denials. In most cases, even if an auto loan is approved for a borrower with bad credit, they typically involve shorter loan terms, high interest rates, and larger down payments.
Following is a detailed overview of how to get an auto loan with bad credit and the best resources to use when applying for a car loan.
Check Your Credit Score
The first step to getting a car loan is checking your credit score, especially if you think you have bad credit. Knowing your credit score allows you to set expectations of auto lenders' rates and gauge whether they're offering a good deal.
We also encourage getting a free credit report to check for any inaccuracies affecting your scores. Doing this allows you to devise an effective plan to increase your score and be more appealing to lenders.
Gather Your Information
Fortunately, most auto lenders consider more than just the credit score to approve auto loans, so if you have a less-than-perfect credit score, you can provide other relevant documentation to show lenders you're likely to pay back the car loan. You may need to supply your:
- Name, address, and phone number
- Proof of previous loan repayment
- Monthly income
- Credit score
- Debt-to-income ratio
- Gross annual income information
- Employment history
- Social Security number
Having this information updated and ready to present to the lender increases the chances of getting the auto loan approved.
Increase Your Chances of Being Approved
You may not be approved the first time when applying for an auto loan, especially if you have bad credit. To increase your chances of getting your auto loan approved:
- Apply with a cosigner: Ask a trusted person with strong credit to cosign your bad credit auto loan. Cosigning allows you to get a lower interest rate on your auto loan than the rate you'd otherwise get.
- Buy with cash: If you can afford to do it, paying with cash might be the best option. Owning a car outright eliminates the risk of repossession. It can be considered a financial asset, improving your credit score.
- Make a large down payment: A large down payment when purchasing a car significantly reduces the loan amount, making the lender more likely to approve the loan because of its reduced overall risk.
Things to Keep In Mind
Borrowers with bad credit can also get auto loans; they just need to find the right financial provider and provide the proper supporting documentation to increase their chances of getting their loans approved. Several banks, dealerships, credit unions, and online lenders offer bad credit auto loans at different rates and terms.
Typically, borrowers with bad credit pay higher interest rates, make larger down payments, and receive other stricter loan terms. However, we advise borrowers not to settle for the first offer they receive. We recommend shopping around and comparing providers to find the best auto loan with favorable terms and rates.
Our Mabry Auto Group Financial Center Has Everything You Need
Our finance team is always on standby and ready to listen to your needs. We treat every client with dignity and respect, regardless of their financial situation. Work with our knowledgeable staff to find the best financial solution to get you into your dream car.
The Mabry Auto Group team assesses your financial options based on your down payment, trade-in options, and other factors. We're dedicated to helping our clients find the best deals and getting them in their desired cars as quickly as possible. Contact us today for more information on your car loan.
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