Good job, bad credit, and need a car loan
There are times when even a good job and a decent income isn’t enough to keep you from being turned down for a car loan, and often times it’s because of a bad credit score. However, there are options for borrowers with less than perfect credit.
Good income and bad credit
There can be many reasons why a borrower has a bad credit rating, and it can be difficult to overcome even with a high paying job. Income and work history are key to getting approved for a car loan – you need provable income to pay off the loan! But for many traditional auto lenders, that may not be enough to meet their income and employment needs for vehicle financing alone.
Many traditional auto lenders also use credit scores to assess your creditworthiness. Your creditworthiness represents your ability to repay your debts, based on how you have handled your credit in the past. If your credit rating is bad, it can make it look like you’ve struggled to pay off your bills and / or loans on time in the past, which can make a traditional lender reluctant to approve you.
The logic behind this is that even if you have the money to make loan payments on a car, the lender may still be concerned because of your questionable credit history.
Generally speaking, a credit score below 660 is considered bad. Negative marks on your credit reports, such as an old vehicle trade-in or bankruptcy, can also be a reason you are turned down for auto financing.
If you’re in this boat and need a car loan, it might be time to consider risk financing.
Subprime auto loans
For a subprime lender, your credit score is only one piece of the puzzle. Your credit reports and your score have an impact, but it’s not always a deciding factor. They often help borrowers with credit issues resulting from divorce or job loss, bankruptcy, and bad credit due to a poor credit history.
In fact, most of their vehicle financing requirements relate to your ability, stability, and willingness to pay for a car loan. If you can meet the income and employment requirements for subprime financing, you are on your way to securing an subprime auto loan.
Here are the three pillars of subprime auto credit:
Capacity – This is your income and your budget. Subprime lenders must see sufficient provable income to repay the loan successfully. Usually, subprime lenders require a minimum monthly income of around $ 1,500 to $ 2,500 before taxes. You should also have sufficient disposable income to cover the car payment and full coverage auto insurance without exhausting yourself.
Stability – This factor concerns your financial and life stability. As a general rule, the longer a borrower has lived in the same area and held the same job, the more likely they are to repay their loan successfully. Subprime lenders generally require that you have lived in the same residence for about a year and have had the same job for about six months to a year. They may also ask you questions about your work history over the past three years and require that you had a stable job during that time (with no gap between jobs of more than 30 days).
Willingness to pay – This is your down payment requirement. Subprime lenders almost always require a down payment of at least $ 1,000 or 10% of the vehicle’s selling price. Money set aside increases your chances of approval, as down payments decrease the amount you fund and give you some leverage in the game. You can use cash, trade-in equity, or a combination of both to meet this requirement.
Besides these three pillars, there are a few other things you can put together to prepare for risky auto financing:
- Recent computer generated check stubs to prove your W-2 income source
- Your last two to three years of tax returns if you have a 1099 income source
- Letters of award if you earn permanent disability, social security or alimony
- A list of five to eight personal references
- A valid driver’s license
- A recent phone bill for proof of a working phone
- A recent utility bill or bank statement to prove residency
- Release documents if you were recently bankrupt
Of course, not all of the above are required for every borrower, and subprime lenders vary in their auto loan requirements.
How do I find risky lenders?
Finding a subprime lender begins with finding a dealer who has signed up with them. Subprime lenders specialize in assisting borrowers with difficult credit situations. They’re third-party lenders, so you’re actually working with the dealership’s special finance director who acts as an intermediary between you and the lender.
Getting in touch with a dealer who has signed up with subprime lenders could be tricky. But here at Auto Express Credit, we want to make it easier to find your next car loan.
Over the past two decades, we’ve built a coast-to-coast network of dealerships registered with subprime lenders, and we want to look for one near you. Simply fill out our free auto loan application form and we’ll get to work helping you get the connections you need. There is never a cost or obligation, so get started today!