How to Get Auto Financing with a Low Credit Score

Get Car Financing
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 - October 11, 2016

A low credit score can affect your ability to get approved for auto financing. Bad credit will affect the way lenders view your loan application, but that doesn't mean getting financed is impossible. You just have to know where to look.

Before Applying for an Auto Loan

A low credit score doesn't mean you can't get approved for auto financing, but it does change the process. Before you walk into a dealership or apply for an auto loan elsewhere, there are some steps you should take.

  • Check your credit - You should know exactly where you stand with your credit. That means checking all of your credit reports and at least one credit score before applying. Perhaps your score isn't as low as you think. Or, maybe you will find some errors on your credit reports that you can dispute.
  • Budget - You should also get an idea of what you can comfortably afford. Be sure to consider both the total cost of a loan and your monthly budget. If you are working with a tight budget, you may be better off looking at an affordable used car.
  • Prepare a Down Payment - If you have bad credit, a down payment is a great way to increase your chances of an approval. It is also a fact that when buyers contribute their own money to a loan, there's a greater chance that it will be completed successfully. Plus, when you finance less, you can save on interest over the life of a loan.

Taking these steps will help you get prepared and set the right expectations when it's time to explore your financing options.

Auto Financing Options with a Low Credit Score

If you have a low credit score, you should first try getting approved for an auto loan before choosing a vehicle. Here are your options:

  • A Bank or Credit Union - You should always start by applying with your bank or credit union; an existing relationship definitely helps your approval chances. The problem is that most banks and credit unions typically don't approve applicants with low credit scores. But even if you don't think you can get approved, you should still try this first.
  • Dealership Financing - When working with a low credit score, your best bet is a car dealership with an established special finance department. These dealers typically have working relationships with multiple subprime lenders. These are lenders that are willing to work with people with bad credit because they consider other factors — such as your income and employment history. However, be aware that not all dealerships have a special finance department.
  • In-House Financing Car Dealers - There are certain car lots that finance their vehicles in-house. These places are sometimes referred to as buy-here-pay-here or tote-the-note car lots. Because they don't use third-party lenders, these loans usually don't require a credit check. In most cases, these car lots should only be used as a last resort for consumers with severely damaged credit who desperately need a car. This is because the interest rates are generally very high and these dealers often only stock older used vehicles, which means you may end up paying much more for a car than it is actually worth. Also, because they finance in-house, many of these dealers don't report loans or payments to the credit bureaus, which means this type of loan won't help you rebuild your credit.

The bottom line is that when you are trying to get auto financing with a low credit score, it makes a big difference when your loan and payments are reported to the credit bureaus. You stand to greatly improve your credit score over the course of the loan if you make every payment on time and in full. For this reason, it is to your advantage to try to get approved at a bank, credit union, or through a traditional dealership.

If you have bad credit and are struggling to get approved for auto financing, CarsDirect is here to help. We've been helping people in all types of credit situations get approved for car loans for close to 20 years. Let us see what we can do for you next. Fill out our free and secure application to get started 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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