Being turned down for a car loan is disheartening, but there are lenders for those with lower credit scores who can often offer a second chance at car financing.
Find second chance funding
There are generally two options for bad credit borrowers when it comes to second chance financing: internal financing and subprime loans. These loans are more common than you might think. Traditional lenders may turn you down with a bad credit score, but you may be able to get approval from a bad credit lender.
Many borrowers with less than perfect credit financing through a Buy Here Pay Here (BHPH) dealership. In these lots, the dealer is also the lender and they provide internal financing. This means that purchasing and financing are done in one place, and you may also need to make payments for your car there.
Another option is through a special financial concessionaire and working with a subprime lender. These lenders look at your credit reports, but they also take into account your income, the stability of your home, and your willingness to put down a down payment. At these dealerships, the CFO works on behalf of the subprime lender.
If you’re looking for a second chance car loan, we explain how both financing options work and how to find them.
Buy here Pay here Dealers
Finding a BHPH dealer is usually not difficult. There are used car fleets across the country in most cities that advertise in-house financing, bad credit auto loans, and second chance loan options.
Internal finance dealers do not rely on third party lenders for auto loan approval because they are also the lender. The biggest benefit for borrowers with bad credit is that they usually don’t check your credit reports because they are more concerned with your income and your ability to make a down payment.
Income requirements vary at BHPH dealers, but you still need to prove that you have a stable income that will last for the life of the loan. The down payment required also varies, but you can be expected to reach 20% or more of a vehicle’s selling price. Income and down payment requirements also depend on the type of car you are looking at, and BHPH lots only sell used vehicles.
Plus, you should expect a higher than average interest rate on your loan. Since there is no credit check, a high interest rate is generally seen as the trade-off at these dealerships.
If you are looking to improve your bad credit rating with a BHPH loan, that may not happen. Not all BHPH dealerships report auto loans or payments to major credit reporting agencies, which means your on-time payments will not be reflected in your credit reports. An unreported loan will not improve your score.
However, all of these dealers report missed or late payments, in addition to defaults and repossessions. If you’re looking to improve your credit score and improve your credit reports, just ask if the dealership is reporting their loans. If not, you should look for another one.
If you have a recent car repossession (less than a year ago) or other serious credit damage, a BHPH dealership may be your second chance to get auto financing approval.
Subprime auto loans are reported to the credit bureaus. With a second chance auto loan, you have the opportunity to improve your credit score if you keep up with the payments. Finding a subprime lender is a bit trickier than finding a BHPH dealer, as these lenders tend to work through the special financial department of a dealership.
As for financing needs, subprime lenders tend to follow similar guidelines. Typically, you will need to prove a minimum monthly income of around $ 1,500 to $ 2,000 (before taxes) and have a stable and consistent work history. Your income can be proven with a recent computer generated pay stub that lists your cumulative income for the year.
Additional things you need to consider for financing usually include:
- A recent utility bill or bank statement in your name that proves your place of residence.
- A proven working phone (landline or cell phone) with a phone bill in your name.
- A valid driver’s license.
Subprime lenders also require a down payment, usually at least $ 1,000 or 10% of the vehicle’s selling price (sometimes whichever is less). This is determined once you are approved for funding because your disposable income determines your monthly payment budget. After approval, you can also expect to need to provide the lender with a list of five to eight personal references with full contact details (phone number, addresses, email, etc.). From there, you pick a car from the dealership lot that you’re eligible for, sign the loan documents, and take delivery.
The goal of these second chance auto loans is to prepare you for success. The lender uses your information to tailor the loan terms that best suit your credit situation and offers you a car payment that you can reasonably afford so that you can complete the loan successfully.
Find a second chance car loan
If your credit union or bank can’t approve a loan for you, or if your credit rating just isn’t up to par, second chance finance dealers might be for you. The type of second chance financing you choose will largely depend on your income, work history, and ability to make a down payment. But, if you want to save time and effort in finding the right dealer, start here with us.
AT Express auto loan, we want to help you if you’re ready to take the plunge and find a dealer who can work with you. We know which dealerships work with bad credit borrowers and offer second chance financing. To be matched with a dealer near you, complete our free auto loan application form.