Why Can’t I Get a Regular Car Loan With Bad Credit?

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Content Manager

Bethany Hickey is a Content Manager and Writer for Auto Credit Express, CarsDirect, and many other automotive blogs. She's a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. 

, Content Manager - December 9, 2020

For many auto lenders, a good credit score is a cornerstone of getting approved for a regular car loan, but this doesn’t mean you don’t have options. There are lenders that specialize in working with bad credit, and we can guide you in the right direction.

Auto Lenders Use Your Credit Score

Your credit score is a three-digit number generated from your credit reports. It serves as a way for an auto lender to judge your creditworthiness at a glance.

Creditworthiness, in a nutshell, is how you’ve handled repaying borrowed money. When you take on a loan or any other type of credit, and the lender reports that account to the credit bureaus, your history on paying it is recorded. How you’ve handled repaying credit, how long you’ve had credit, the balances of those accounts, and more all contribute to your credit score.

Regular car lenders put a lot of weight on your credit history and score. A lower credit score can mean you’ve had issues repaying credit or you’re new to credit (no credit), so they may be hesitant to approve you for traditional financing. In addition to meeting the base credit score requirements of auto lenders, your credit score is typically what determines your interest rate.

If you have bad credit, you may have to look into different avenues to get your hands on a car loan.

Where to Get a Car Loan With Bad Credit

Unfortunately, a poor credit score is enough to get turned down for a regular auto loan if you apply with traditional lenders. Most direct lenders from banks, credit unions, and many automotive lending institutions have higher credit score requirements.

However, there are indirect car lenders that are signed up with special finance dealerships that assist bad credit borrowers.

They’re called subprime lenders and they specialize in working with borrowers who’re new to borrowing or those who have less than perfect credit. Normally, if your credit score is below around 660, you’re considered a subprime borrower – the namesake for these bad credit auto lenders.

Aside from subprime lenders, there are dealers with in-house financing that are known for skipping credit checks. They’re also known as buy here pay here (BHPH) used car lots. For them, your down payment and income are the biggest determining factors for an auto financing approval. Borrowers with very recent credit score damage who need a vehicle quickly may be able to get financing from these dealerships.

Subprime Auto Loans

Subprime lenders are signed up with special finance dealers. They’re third-party, so you never meet with them, but the special finance manager works you through the process. You submit all your documents at the dealership to be verified by the manager, who sends it along to one or more subprime lenders.

If you qualify for financing, the subprime lender sends back a payment call, which outlines the maximum car payment you qualify for. After that, you choose a vehicle that fits your needs from dealer stock. You finalize all the rest of the paperwork at the dealership and take delivery of your car!

The basic requirements of a subprime auto loan tend to be:

  • Income – Most subprime lenders require a gross minimum monthly income of around $1,500 to $2,500, proven with computer-generated check stubs.
  • Living stability – Subprime lenders require that you’ve lived in the same place for around one year. You can prove your residency with either a recent utility bill or a bank statement in your name.
  • A working phone – They need to be able to contact you, so have proof of a working contract cell phone or a landline.
  • Down payment – The amount varies, but subprime lenders usually require at least $1,000 or 10% of the vehicle’s selling price, sometimes whichever is less.
  • Driver’s license – Used to verify your identity and so you can test drive and drive a car off the lot. Must be valid, meaning it's not revoked, expired, or suspended.
  • List of personal references – If you qualify, expect to provide a list of five to eight personal references. They can be friends, family members or coworkers, they just can't share your home address.

Your personal situation may create the need for more documents, but the above requirements are the typical things you need to qualify for a subprime auto loan.

In-House Financing

While subprime lenders can assist borrowers in many touch credit situations, they can’t help in every scenario. If you have very recent credit score damage – such as a repossession that’s less than a year old or multiple repos – a BHPH dealer may be more your speed.

These dealerships have a unique set up. The dealer doesn’t need to rely on a third-party lender to finish out the financing process, because they’re also the lender. They can skip the credit check, and all of the shopping and financing is done in one place. It’s typically a quick process for bad credit borrowers who need a vehicle fast.

The list of requirements for a BHPH dealership varies, but you’re usually required to have a qualifying income, a down payment, a valid driver's license, and possibly proof of residency as well.

While BHPH dealers may skip over the credit pull, it means they’re not as likely to report your auto loan to the credit bureaus. If your loan isn’t reported, your on-time payments don’t improve your credit score.

If you’re worried about credit repair, ask the dealership about their reporting practices before you go through with in-house financing. Subprime lenders, however, do report their loans to the credit bureaus.

Get Connected to a Car Dealership Near You

Bad credit can get in the way of the things you need, but it doesn’t have to be that way if you know where to look. While you may not be able to get a regular car loan with bad credit, there are many non-traditional options to explore. Here at CarsDirect, we know which dealers can help bad credit borrowers, and we want to look for one in your area.

We’ve gathered a nationwide network of dealerships over the last 20 years. Get connected to a dealer by filling out our auto loan request form – there’s no obligation, it's secure, and completely free.


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, Content Manager

Bethany Hickey is a Content Manager and Writer for Auto Credit Express, CarsDirect, and many other automotive blogs. She's a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. 

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