How to Get a Small Car Loan

Get Car Financing
Even with poor credit.

By

Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.


, - October 17, 2018

If you’re on a tight budget and looking for a cheap car, you might be wondering just how small of an auto loan you can get. Ultimately, it depends on your credit score, the lender, and your personal budget for a car loan.

What’s the Lowest Approval Amount for a Car Loan?

The biggest factor that determines the lowest approval amount you can get for an auto loan is your credit score. If you have good or excellent credit, you can finance nearly any amount, depending on your income and debt to income ratio. If you have credit issues, on the other hand, it’s a different story. Instead of going to a traditional lender, you typically need to find a dealership with subprime lenders that are able to work with bad credit.

Subprime lenders have a minimum amount they’re willing to finance for a car loan. This varies by lender, but the amount financed generally must be at least $5,000, the loan term must be at least 24 months, and you need to have a down payment of at least $1,000 or 10 percent of the vehicle’s selling price, whichever is less. Keep in mind that if you want to finance a car that falls into the $5,000 range, the types of vehicles you could be dealing with are older with high mileage, so you should also budget for maintenance costs.

Setting a Budget and Determining Your Monthly Payment

What should you be paying for an auto loan each month? When coming up with a monthly payment budget, you need to know what affects it first. Besides your credit score, here’s what else factors into your monthly payment:

  1. Income – A minimum monthly income of $1,500 to $2,000, pre-tax, is what most subprime lenders require. In addition, they want to see that your debt to income ratio is below 50 percent (including a car and insurance payment), and your payment to income ratio should usually be no more than 15 to 20 percent of your income before taxes.
  2. Cost of the vehicle – Older vehicles cost less than newer ones, although maximum loan terms tend to decrease as cars age.
  3. Loan length – The longer the loan term, the lower your monthly payment is, but the overall cost of your loan increases due to additional interest charges.
  4. Down payment – You must make a down payment with a subprime car loan. Usually, it’s at least $1,000 or 10 percent of the vehicle’s selling price, whichever is less. If you make a larger down payment, your monthly payment decreases.
  5. Interest rate – The lower your score, the higher your interest rate is likely to be. According to Experian, the average interest rate on a used car loan for subprime borrowers (501 to 600 credit score) was 16.72 percent in the second quarter of 2018.

Once you have an idea about how much you want your monthly payment to be, how much money you plan to put down, and know how long you want your loan term to be, you can use online tools such as our Car Loan Calculator to get an estimate of how much car you can afford (although you still won’t know the exact interest rate). From there you can research vehicles on our site that fall within your expected budget.

The Bottom Line

Before you head to a dealership, know where your credit score stands and how much car you can afford. The more prepared you are, the easier it is to get approved for a small car loan.

If you’re looking to finance a small auto loan, but worry your credit’s holding you back, let CarsDirect help. We work with a coast-to-coast network of dealerships that specialize in helping bad credit car buyers get the financing they need. All you need to do is fill out our car loan request form. Our service is free of cost and obligation, so get started right now!

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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.


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