When to Consider a Bad Credit Car Loan

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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 29, 2020

If you’ve gone through the process of choosing a vehicle and gathering all your items to apply for a car loan with your financial institution only to be denied for financing, it may be time to check out bad credit auto lenders.

Traditional Auto Lenders and You

Generally speaking, if your credit score is around 660 or lower, you may have some issues getting approved by traditional car lenders, such as credit unions, banks, or manufacturer captive lenders.

This is where bad credit car loans from subprime lenders come in. These lenders offer borrowers with bad credit, or those new to credit, a second chance at auto financing. Subprime financing gives borrowers the ability to repair and rebuild their credit with a bad credit car loan that’s reported to the credit reporting agencies.

Subprime lenders look at more than just your credit score during the auto loan approval process, which means that they’re able to work with borrowers in many different types of credit situations.

When You Should Consider a Subprime Car Loan

Whether or not a bad credit car loan is right for you depends a lot on your personal and financial situation. We have a list of five scenarios for when people should consider a bad credit car loan:

1) When your credit score is between 300 and 659

Typically, subprime auto loans are for borrowers below a credit score of 660. If your score is higher than that, we recommend that you first attempt to apply at your credit union or bank. If you already have and your credit score doesn’t meet their requirements, then a subprime lender could be for you.

Subprime simply means “bad credit,” so if you have bad credit and haven’t had any luck getting approved by traditional car lenders, then it may be time to change course and try working with a dealership that has a special finance department that offers subprime lending options.

2) When you’re a brand new borrower

If you’ve never taken out credit before, you’re considered a new borrower with a thin credit file, which represents some risk to auto lenders. Generally, new borrowers start with a credit score in middle or lower end of the credit score scale, which ranges from 300 to 850 on the FICO scale.

Many traditional car lenders turn down new borrowers for auto financing, simply because they haven’t yet proven that they can repay a large loan. If you’re new to credit, subprime car loans could be your way of getting your feet wet and starting your credit history off on the right foot.

3) When you have a bankruptcy on your credit reports

If you just completed a Chapter 7 or a Chapter 13 bankruptcy, then a subprime auto loan could be your way of getting into your next vehicle. Many traditional lenders are hesitant to approve borrowers with a bankruptcy on their credit reports.

However, subprime lenders often work with post-bankruptcy borrowers. And if your bankruptcy was recently discharged, you can typically get into a car loan right away if you work with a subprime lender.

4) When you have a repossession on your credit reports

A repossession is usually a big red flag to most lenders. However, subprime lenders are willing to work with borrowers who have had one repossession on their reports that’s over a year old. If you have multiple repossessions, you should wait until only one appears on your credit reports before you apply with a subprime lender.

5) When you just got out of a divorce

Usually, couples who divorce both suffer some negative hits on their credit reports. This is because finances get split up, big-ticket items get divided, and incomes are sometimes cut in half since many households are dual-income.

However, this is considered situational bad credit, not habitual bad credit. If you’ve handled credit well in the past, but divorce has lowered your score, a subprime lender is more likely to work with you than if you had a repeated history of credit issues. Subprime lenders understand that borrowers are more than a credit score, which is why they look at income, living stability, and willingness to pay, instead of just your credit score.

Finding a Bad Credit Car Lender

If you’re a new borrower who can’t quite meet the requirements of traditional auto lenders, subprime lending could help you get your credit started. If you’ve had some hiccups or credit issues in the past and you need a second chance at car financing, a subprime loan could be how you start to repair your credit and work to increase your chances of getting approved for better loan terms in the future.

If you want to get started with a subprime lender, begin with us at CarsDirect. We have dealer connections all over the country, including dealerships that work with bad credit lenders. To get matched to a dealer in your area that has subprime lending options, simply fill out our free auto loan request form. There’s never an obligation to buy anything, and our form is secure, quick, and easy.


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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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