What Are My Auto Loan Options With Poor 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 - June 11, 2020

You’re not alone if you’re struggling with credit issues; many Americans have situational bad credit from job loss, divorce, and bankruptcy. Even if your credit is poor due to some missed or late payments or a repo, you may still have auto loan options.

Poor Credit Car Loans

A poor credit score can mean a denial from a traditional auto lender, which isn’t the best feeling when you really need a car. While you may have the income, a low debt to income ratio, and even a trade-in with equity, a lender may turn you down for financing if your credit score is low.

Your creditworthiness is determined by what’s on your credit reports (and maybe even what’s not on them). If you have no credit, it’s called having a thin file, in which case lenders aren’t sure of your credit habits or how you’re going to handle new credit.

If you have missed or late payments, or a past repo, showing on your credit reports, this lowers your score and can make lenders hesitant to approve you for an auto loan. Not all hope is lost, though!

There are subprime lenders and in-house financing options for borrowers in nearly all credit situations to check out. It may not be the time to get into that dream car you’ve always wanted, but there are many ways to get into a vehicle with tarnished credit.

Subprime Lenders and Special Finance Dealerships

If you’re a new borrower, or a poor credit borrower who wants to build a good credit history, a subprime lender could be for you.

These lenders offer loans through a dealership’s special finance department, where the special finance manager works with one or more subprime lenders. To get financed, you need to find a dealer with a special finance department. Once you do, you fill out a credit application and the lender verifies your information with some items that you provide (check stub, utility bill, driver’s license, phone bill, and maybe more, depending on your lender).

From there, the lender determines the monthly payment that you qualify for, and then with the finance manager’s help, you choose a vehicle that fits within the monthly payment.

To sum it up quickly: the lender determines a monthly payment range for you, then you choose a car that fits within that range.

Subprime lending is a different process than a traditional auto loan, since you choose the vehicle at the end of the process – but it’s like this on purpose. By creating a car loan that’s based on your ability to pay, it lowers your chance of defaulting and increases your chances of keeping up with the payments, improving your credit score, and, overall, completing the loan successfully.

No Credit Check Dealerships

While subprime lenders review your credit reports, there are bad credit auto lenders that don’t normally check them at all: buy here pay here dealerships or BHPH lots. They’re also sometimes called tote the note used car lots.

At these places, you won’t have to worry about finding a lender to work with because the dealer at the location is the lender. This is called in-house financing. Since the dealership looks at your ability to pay rather than your credit, they usually don’t pull a credit report during the approval process.

BHPH dealers are more concerned about your income and down payment. Provide these two things, and you’re likely to get approved for an auto loan. There are some downsides to consider, however.

The first is that vehicle options are limited to just used cars. Secondly, these loans are more likely to have higher-than-average interest rates. Third, BHPH dealerships don’t normally report loans or on-time payments to the credit reporting agencies. As a bad credit borrower, this means that your credit score won’t improve from the loan, even if you handle it well.

However, most dealers are quick to report missed and late payments, defaults, and repossessions. Just because they didn’t report the good-paying behavior doesn’t mean that they won’t report a missed payment (they probably will).

Getting Connected to a Bad Credit Auto Lender

Bad credit auto lenders take more into account than your credit score, so you should be prepared with a down payment, proof of income, and other supporting items proving that you’re ready to take on a car loan.

If you’re looking for your first auto loan, or your credit reports have seen better days and you want to spruce them up, a subprime car loan could be what you need next.

If you’ve had a recent repossession or other serious marks on your credit reports, BHPH lots could be your go-to choice for your next vehicle. They may not be ideal, but visiting one could help you get into a car rather quickly.

At the same time, special finance dealerships can be hard to pick out from the crowd, but here at CarsDirect, we know which dealers work with bad credit borrowers. To get connected to one in your area with bad credit lending options, simply fill out our free auto loan request form. We’ll look for one near you and get you started on your car shopping journey right away!


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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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