How Big of a Car Loan Can I Qualify for with Bad Credit?

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Even with poor credit.

By

Contributing Writer

David Topham covers the automotive and auto finance industries as the Content Manager of Auto Credit Express who also contributes to CarsDirect. He was born and raised in Michigan and is a graduate of Michigan State University.


, Contributing Writer - March 9, 2018

The auto loan a bad credit borrower might qualify for depends on many different factors. We aren't able to tell potential borrowers how big of a car loan they might get because it hinges on how a lender evaluates different factors and what programs they offer.

The Auto Loan Process with Bad Credit

Borrowers with good credit have one big advantage over consumers with poor credit: more lenders are willing to finance them. Good credit car buyers can approach a lender directly and get pre-approved for a car loan. The lender will provide terms and a maximum amount they're willing to finance, so the borrower knows what they can spend on a car.

With bad credit in the picture, the process works differently. The majority of lenders don't work with borrowers with credit problems. The subprime lenders that do are almost always indirect lenders who work through special finance dealerships. Because of the added risk involved, subprime lenders require dealers to work as the go-between for accuracy and verification.

Borrowers in need of a bad credit car loan first have to locate a dealership that works with subprime lenders. There, a borrower will meet with the finance manager to provide information and fill out an application. The finance manager will send it to their lenders, who will make the loan decision.

If a lender approves the application, they'll set the loan terms: interest rate, down payment requirement, maximum loan length, maximum mileage on the car, maximum monthly payment, and the maximum amount of the car loan. At that point, the car buyer can choose from the qualifying vehicles in the dealership's inventory.

Factors that Influence the Size of Your Auto Loan

Subprime lenders consider many things about a car buyer's overall borrowing profile when making a decision. When determining the size of the loan, lenders mainly focus on income and the debt-to-income (DTI) ratio.

These lenders only approve loan amounts based on what a borrower can afford, which is why they focus on disposable income. The DTI ratio shows lenders how much of a borrower's income is already promised to expenses. Typically, they won't approve applicants with monthly bills that are more than 45 to 50 percent of their gross income.

Because of these evaluations, a borrower with bad credit can't learn the amount of the auto loan they can get until a lender analyzes their credit and income. However, we can say that subprime lenders typically won't finance a loan amount that's less than $5,000, and the maximum amount they allow tops out anywhere from $20,000 to $35,000, although this varies.

Borrowers can still prepare for their loan by doing research online. Tools like our Car Loan Calculator provide an estimate to use as a baseline, but in the end, only a lender can determine an actual loan amount.

Finding Auto Financing

CarsDirect helps people with less than perfect credit get connected to local dealerships that specialize in handling many types of credit situations. Get back on the road and on the path to better credit. Start the process by submitting our free and easy auto loan request form online.

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, Contributing Writer

David Topham covers the automotive and auto finance industries as the Content Manager of Auto Credit Express who also contributes to CarsDirect. He was born and raised in Michigan and is a graduate of Michigan State University.


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