If getting a cosigner for your next car loan just isn’t an option, you’ve still got some alternatives to explore.
No Cosigner – Still Need a Car!
Cosigners are often utilized by borrowers who have bad credit. But, for a cosigner to work, they need a steady income and a good credit score. On top of that, they would need to be willing to put their good credit history on the line to help you get an auto loan.
When a cosigner signs onto a car loan with you, how you handle payments on the loan impacts both of your credit scores (positively or negatively). Cosigners also don’t have any rights to your vehicle. Combine all these factors, and it’s no wonder why many people are hesitant to sign on that dotted line for you.
Having a cosigner isn’t always an option, but it doesn’t mean you’re out of options! There are two main alternative lending options for borrowers whose credit is in the way of getting approved for an auto loan:
- Subprime lenders
- In-house financing
Both alternatives function differently, so it's important you know how they work so you can choose the best route for you.
Subprime Lenders and Bad Credit Car Loans
Subprime lenders operate through a dealership’s special finance department, and they work specifically with borrowers who have less than perfect credit. The dealer acts on the subprime lender’s behalf, so when you visit, all of your documents and applications are done at the dealership and sent to the subprime lender off-site. You don’t have to drive to the bank then to the dealer – everything is done at the dealership.
The unique thing about subprime lenders is they don’t just look at your credit score when you apply for auto financing; they look at many moving parts of your overall situation to get a better picture of you as a borrower. This means they ask about your work history, residence stability, income, and more.
When it comes to meeting the requirements of a subprime lender, they vary. While lenders all have different stipulations when we get down to the nitty-gritty, most follow a basic format when helping bad credit borrowers.
Firstly, you’re going to need a down payment. It’s been shown that borrowers who put money down are more likely to see the loan through to the end. This is called having some skin in the game, and it tells lenders you’re serious about completing your car loan successfully. Most subprime lenders require a down payment of at least $1,000 or 10% of the vehicle’s selling price (sometimes whichever is less).
In addition to bringing a down payment, you’re going to need to bring in some other documents. These items usually include:
- Your valid driver’s license with your current address.
- A recent utility bill in your name, or a recent bank statement.
- A recent computer-generated check stub that shows year-to-date income.
- A recent phone bill in your name, for a landline or contract cell phone (no prepaid phones).
- A list of five to eight personal references with their complete contact information (no references that share your current address).
Depending on your personal situation, you may be required to bring fewer or more items before you can get the ball rolling.
One of the biggest reasons to look for a subprime auto loan is the chance for credit repair. Some bad credit car loans aren’t reported to the major credit bureaus, which means your on-time payments don’t do anything to build up your poor credit score.
However, subprime auto loans are reported. If you keep up on the payments and maintain the rest of your finances, you could be looking at a better credit score than when you started, all the while getting into the transportation you need.
In-House Financing
Dealers that have in-house financing are often called buy here pay here (BHPH) dealerships, or sometimes tote the note used vehicle lots. These dealers are unique because they're also lenders, hence the name “in-house.” All of the lending and car buying is done in one place, which screams convenience – similar to subprime auto loans.
BHPH dealerships only offer used vehicles, and they tend to assign higher than average interest rates with their car loans. However, as a bad credit borrower, BHPH dealers have something that sets them apart from others: most don’t care about your credit score or credit reports. If you have major damage to your credit reports, this could be the break you’re looking for.
If you decide to work with a BHPH dealership, while they may not check your credit, they're going to check your income and require a down payment. Both the income and down payment requirements vary widely from BHPH dealer to the next, but some require around 20% down in cash or trade-in equity to be considered for financing. A BHPH dealership’s main concern is whether or not you have the income to repay the loan, and putting money down shows your willingness to do so.
If you’ve got the steady income and down payment prepared, but you have multiple repossessions or a few bankruptcies being reflected on your credit reports, this could be the route for you.
However, a BHPH used vehicle lot sometimes isn’t the place for credit repair. Some of these dealers don’t report their auto loans to the major credit agencies. Unlike a subprime car loan, your on-time payments wouldn’t go toward rebuilding your credit score in this scenario.
Bad Credit Auto Loans Without Cosigners
While having a cosigner can definitely increase your chances of being considered for an auto loan, it still isn’t a guarantee. It also helps to work with the right dealership that has the alternative bad credit lending resources you need.
If having a cosigner is a luxury that you just don’t have, finding the lending options you need can start with us at CarsDirect. We have a nationwide network of dealers that are signed up with bad credit car lenders. To begin the search, simply fill out our auto loan request form. The best part? The form is completely free, and there’s never an obligation to buy anything.