How to Get a Bad Credit Car Loan

Get Car Financing
Even with poor credit.


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 - August 16, 2018

Qualifying for a car loan when you have bad credit can be more difficult than with good credit. In fact, there are fewer lenders willing to finance bad credit auto loans, and the requirements to qualify are also different, but our tips can help you know what to expect as well as find financing regardless of your credit score.

Getting a Bad Credit Car Loan

One part of the bad credit auto loan process that's different is finding financing. Most major lenders and big banks are direct lenders, which are less likely to approve borrowers with poor credit. Instead, you stand a better chance of qualifying with a subprime lender.

Subprime lenders are indirect lenders, which means you can't visit them either in person or online and apply for a loan. The way to get financed through one is to find a dealership that's signed up with one or more of these subprime lenders.

You can certainly try to get pre-approved with your bank or credit union, but if bad credit is keeping you from qualifying, your best bet is to find one of these dealerships – which CarsDirect wants to help you with.

Knowing what to expect to qualify for a bad credit car loan at one of these dealerships can also help you prepare for the process.

How to Qualify for a Car Loan with Bad Credit

Subprime car loans are designed for borrowers with less than perfect credit, so the qualifications are different than they are for people with good credit. While there are no universal standards, these are the major factors subprime lenders use when determining if you qualify for a bad credit car loan:

  • Age and Residence – To get a loan, you have to be at least 18 years old and be a current resident and legal citizen of the United States.
  • Credit Score and Profile – While subprime lenders finance borrowers with poor credit by looking at factors beyond credit, there's a minimum credit score you have to have in order to qualify, but what that is varies by lender. Your credit score and overall credit profile determine if you qualify, and the terms you'll be offered, if approved.
  • Income and Employment – You need to make a certain level of income to qualify. The minimum income requirement for most subprime lenders is $1,500 to $2,000 a month before taxes. This income has to come from a single source. Additionally, lenders require this income to be consistent, so they look for job stability. These lenders may require you to have at least six months on your current job with a three-year job history.
  • Debt to Income Ratio – Subprime lenders "debt you out" using a calculation called the debt to income (DTI) ratio. This can be found by adding up all your monthly bills (including an estimated car and insurance payment) and dividing by your pre-tax (gross) monthly income. Typically, your DTI can't top 45 to 50 percent in order to qualify.
  • Payment to Income Ratio – Lenders also don't want your car loan to take up too much of your income, so they look at the payment to income (PTI) ratio. This is found by adding up your estimated monthly car note and insurance payment and dividing the sum by your monthly gross income. In most cases, your PTI can't be higher than 15 to 20 percent of your gross income.
  • Down Payment – These lenders also generally require a down payment as a way to show them you're committed to paying back the loan. The minimum amount is usually $1,000 or 10 percent of the car's selling price, whichever is less. This can be cash, trade-in equity, or a combination of both.
  • Eligible Vehicles – Certain vehicles won't qualify for one of these loans. Subprime lenders typically only finance cars that are 10 years old or newer that have less than 100,000 miles on the odometer. Also, they usually only finance loans that are at least $5,000.
  • Documentation – You also have to provide certain documents. To prove your residence, you need a utility bill in your name to the address listed on your application. As proof of income, you have to provide a computer-generated pay stub from the past 30 days with your year-to-date earnings. You need to prove you have a working phone with a bill in your name – contract cell phones are accepted, but pre-paid phones aren't. Finally, you may be asked for a list of personal references with names, phone numbers, and addresses. Typically, subprime lenders ask for five to eight references.

Bad Credit Car Dealers Near You

Now that you know what to expect to get a bad credit car loan, you might be ready to find a dealership and get financed. CarsDirect can help you find a local special finance dealership using our nationwide network. Start the process by filling out our free and secure car loan request form online today.

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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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