Do You Have Bad Credit? Check Out These 4 Auto Lenders

Michael Collins
January 8, 2021

Chances are, you will need a loan to help you purchase a car. If your credit isn’t great, finding a good loan for your car can be difficult. Auto lenders for bad credit can help you finance your vehicle, even if you have bad credit.  

Auto Loans

We have been spending quite a bit of time at home during the pandemic. As such, our cars have not been getting the love and use they are used to. Should our lives return back to normal one day, we will need to rely on our cars again to get us to and from work as well as getting us to the places we loved to go before our world was flipped upside down!

If you frequently use a car, you may never think about how much you rely on your vehicle. Imagine life without your car! In reality, a car can be one of your most important possessions and chances are you purchase one at some point in your life. Whether you are looking to buy your first car or are looking to replace your current one, you will likely need to get an auto loan to pay for it depending on your credit situation. 

While you may not like taking on debt, auto loans are a great way to have access to a car now instead of having to save for many years to pay for one. They let you get the car you need while allowing you to pay for it over time through a series of small, usually monthly, payments. Since cars can be expensive, the loans for them will be bigger than the typical personal loan. Auto lenders will check your credit profile to see if their potential borrowers have bad credit so they can be sure they will pay the loan back. However, there are bad credit auto lenders, or subprime lenders, out there so you can get the car you need. Let’s take a look at how and where you can get your car financed even if you have bad credit. 

How Can I Finance My Car with Bad Credit?

Auto loans can either be unsecured or secured loans. If your auto loan is unsecured, it means that there is no collateral for your loan that would be claimed by your auto lender if you failed to pay the loan. If it is a secured loan, there is collateral involved. The collateral for your secured loan will be the car you are buying. Should you fail to pay back your auto loan, your lender can legally take your car. Giving out secured loans is safer for lenders, while getting an unsecured loan is safer for the borrower. 

If you are getting a bad credit auto loan,, otherwise known as a subprime auto loan, you will almost certainly get a secured loan. Since credit history and credit rating are used to determine the “creditworthiness” or ability to pay loans back, bad credit history (i.e. you are late on multiple credit card payments) and low credit scores are seen as less creditworthy and less trustworthy. Lenders will be more willing to lend to borrowers with higher credit scores and less willing to lend to borrowers with low credit scores. Giving loans to people with lower credit scores is risky for lenders, as borrowers are more likely to default. To minimize risk, lenders will most likely only offer secured auto loans to borrowers with bad credit. 

Can I Get an Auto Loan with a 550 Credit Score? 

While the minimum credit requirements for borrowers varies for different lenders, you will likely be able to get an auto loan with a 550 credit score, or even lower. Lending money is a businsses, and as such, you will likely always be able to find someone that is willing to lend you money. However, if you have a low credit score, you may have fewer options. If you were to have a higher credit score, more lenders would be willing to lend to you and you will get offered more favorable terms, such as a lower interest rate. 

Similarly, an auto loan with a bad credit score will almost certainly have a higher interest rate than the same auto loan for someone who has a good credit score. The lower you go down on the scale, the higher rate you can expect to pay. You will also pay a higher rate depending on whether you are getting a loan for a new or used car. The lower your credit score, the more you will pay for a new car compared to a good credit score. According to 2020 data from Experian, borrowers with scores between 500 and 600 on average had a rate of 17.8% for a used car and 11.3% for a new car. 

While you can get an auto loan with a score of 550, be aware that you will be paying more for it than if your score was better.

Tips for Getting an Auto Loan with Bad Credit

While you can likely find an auto loan with a bad score, you can make your search much easier and increase your chances of getting your application approved with a few tips. Let’s take a look at some of these tips that can really help you in your search. 

Get a Cosigner 

When someone cosigns on your loan with you, they are assuming the liability of the debt like you are. Essentially, they are promising to pay back the loan in addition to your promise to pay the loan back. However, this is not just a promise. It is a legal obligation. If you fail to pay back your loan, your lender can legally go after your cosigner to get some of their money back. don’t need to pay your loan back anymore. You are still legally required to pay your loan back. 

Getting someone to cosign on your loan is a great way to appease your lenders fears that you might default on your loan. If there is a second person that guarantees to pay the loan, the chances of the lender losing their money significantly decreases. Because of this, they will be much more willing to lend to you if you have a bad credit score and may even offer you a better rate as well. 

You should not get any random person to cosign for you. You should find someone you know well and trust. Along with this, you need to be prepared for the consequences that might happen if you fail to pay off your loan and your cosigner is forced to pay. Bridges could be burnt and relationships could be broken if you leave a loved one out to dry. Before you get a cosigner, make sure you will be reasonably able to pay back the loan before you get it. If you don’t think you will, then don’t get the loan. 

Increase your Down Payment

With your auto loan, you will need to pay some portion of the price of the car before you can get the loan. This portion tends to be around 20% of the value of the car. The more you are willing and able to pay of the down payment, the less the lender needs to lend to you. This will increase the likelihood that you are able to get your loan application approved. While paying even more of the already large lump sum of the down payment may not be realistic for you, it can help you if you are able to pay it. 

Improve your Credit Score

While you will not really be able to change your credit score on the day you are applying for a loan, there are certain measures that you can take in the months leading up to your loan that can help to boost your credit score and allow you to have access to better loans and better rates. If you can reasonably anticipate when you will apply for your auto loan, you should take these measures. 

  1. Pay off your current debt: Paying your current debt off will signal to your lender you will be focused on paying off their loan, not someone else’s. However, don’t close your account too close to your loan application as it can actually hurt your score. 
  2. Increase your credit limit: Increasing your credit limit for your credit cards can decrease your credit utilization rate, which in turn increases your credit score (as long as you use less than 30% of your credit limit). 
  3. Contact your lender: Sometimes your lender isn’t reporting successful payments or is reporting a monthly payment as late that has been paid. Make sure to give your lender a call to get these issues addressed and your score could jump as a result. 
  4. Dispute inaccuracies: Similarly, credit bureaus sometimes report information that is not correct. If you find any inaccuracies, call the credit bureaus and dispute them so your credit score is accurate. 

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Best Auto Lenders for Bad Credit

If you have bad credit and are looking for a lender to give you a car loan, here are some of our picks for which lenders to give a try!

Capital One Auto Finance

Capital One’s auto financing options offer a great service that is available to those with poor credit scores. They offer many features that can make your loan experience much smoother and remove some of the headaches that come with the process of getting loans and buying cars. 

First, Capital One arguably has the best dealership network of any of these companies. This means that Capital One is likely to have a good partnership or relationship with a dealership that is close to you. What does this mean for you? Well, the more dealerships that their loans are offered at, the greater variety of cars and prices you will be able to choose from. If you don’t live in a big city, there is a better chance a dealership close to you will offer loans with Capital One and not the others. 

Second, Capital One is great for prequalifying for your loan. With other prequalifications, you get a hard credit check. Hard credit checks will show up on your credit report, which can hurt your credit score. However, with Capital One you can get an estimation for your potential loans rate and terms so you can decide if you might want the loan before you apply. This does not hurt your credit score. 

Carvana 

Carvana is a relatively new and innovative car retailer that has been disrupting the industry. Carvana is an online retailer of used cars and has since become the fastest growing retailer of such vehicles. Carvana is known for their interesting structures that essentially serve as vending machines where a car buyer who bought their car online can come and pick it up. Along with offering used cars, Carvana offers auto loans to customers to help buy the cars. 

Carvana is arguably the best customer experience. Carvana is a savvy platform that allows you to both seamlessly get your car loan and get your car together. The whole process of getting your car is a fun experience as well. Overall, Carvana has one of the highest customer satisfaction rates for this industry. Further, like Capital One, Carvana also allows you to see your potential rates and terms when they offer a prequalification.  

Unfortunately, Carvana does not allow you to cosign your loan and they do not take any exceptions. Likewise, Carvana only has loans for used cars, since they only offer used cars. If either of these might be a problem for you, you may want to consider going to a different lender to get your car and your loan. 

MyAutoLoan

MyAutoLoan is a slightly different platform than some of these other auto lenders. MyAutoLoan allows you to compare various loan offers from a variety of lenders. Instead of actually offering the loans themselves, they give you the tools to help you compare the various lenders side by side. By shopping around on MyAutoLoan, you might find that your auto loan search is much faster and much more effective than if you were doing it on your loan. 

MyAutoLoan can likely help you get more than one auto loan offer by connecting you with a lender that matches your specific needs or wants. MyAutoLoan can help you get loans for new and used cars. Likewise, by using MyAutoLoan, you could have a few loan offers within a short period of time, usually shorter than an hour, that are just waiting for you to accept! They also have a handy interest rate calculator to help you determine how much you can reasonably expect to be paying for your bad credit auto loan. 

Lending Club 

Lending Club is a good, reliable company that has helped over a million people with their financial services. One of these financial services includes their auto loan refinancing. They offer a quick and painless way to quickly get an offer so you can lower your monthly payment. Further, this comes with no origination fees as well as no fees for paying off your refinanced loan early. 

While it is a great product, Lending Club has a few restrictions that may limit you from getting their loan or having access to a product that is better than their competitors. To start, it is not available in every state like most of these other products are. Similarly, there are various restrictions when it comes to the miles on the car and its age as well as its condition. Also, the loan you wish to finance must have been open for at least a month and must still have 2 years left on the repayment. If you are able to meet all of these conditions, Lending Club’s product can be a great fit. If not, you will need to look elsewhere.

Michael Collins

Michael has a passion for writing and has since brought that passion to Possible. He enjoys reading everything there is to know about film, sports, and finance. His studies in college allow him to be on the forefront of business knowledge so he can better inform his readers.

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