Bad Credit
Car Buying Guide
How to Get a
Bad Credit Auto Loan
Bad Credit Car Buying Guide Step 2 of 4 - Auto Loans With Bad Credit... Where to apply? How much down? Need a cosigner?
Bad credit auto loans seem to be a fairly popular topic these days. Some of the most common questions I receive from visitors to this site and from visitors to the dealership are, "How much do I need down?" and "Will I need a cosigner?"
My quick answer to the first question is that it is possible to use little to no money down with bad credit auto loans, but why would you want to? (more on this below)
To the second question, I say both yes and no. A cosigner can certainly help at times, but is not necessary (also more below). I work with lenders that approve absolutely all credit types, as do hundreds, if not thousands, of dealers across the country.
Here's what you'll find below:
- Where to apply for a bad credit auto loan
- Buy here pay here dealers and their financing
- How much down payment you do or don't need
- Whether or not you'll need a cosigner to get approved
Where to Apply for a Bad Credit Auto Loan
If you've already read the first step regarding your credit in the bad credit car buying guide and find yourself falling into one of the credit tiers mentioned, then let me save you some time and credit inquiries...
99.9% of the time you will not be able to find a lender that will loan you money directly.
They will only approve you for an auto loan that is arranged through a car dealership. In some cases if you were to fall into the upper level tier, then a lender like Capital One might approve you, but it would more than likely come with conditions that are very hard to meet.
Don't get discouraged though, all you need to do is learn where to find specialists that are experts in bad credit auto loans and they can help you get you approved for your next car!
The best source I've found for this is Funding Way. They are a division of Auto Credit Express (very big!) and they've been able to pair up thousands of visitors to this site with loan specialists that have helped them to buy a car.
Simply complete this 60 Second No Obligation Loan Application and you could be approved before you're done reading this page.
Buy Here Pay Here Dealers
It is very rare that anyone gets turned down at a Buy Here Pay Here dealership. They act as both the dealer and the lender. The great thing here is the convenience...Have problems with the car, see the dealer. Have problems with your loan, see the dealer.
In addition, you can also build a borrowing history that can be on more of a personal level, which can make future auto loans easier to obtain. This usually does not happen with traditional lenders as they use computer scoring systems to determine approvals and your past history with them isn't as important as it should be.
The largest Buy Here Pay Here dealers in the country are Drive Time Auto Sales and JD Byrider (220+ dealerships between them).
How Much Down Payment Do You Need
First off, I'd like to point out that down payment does not always have to be in the form of cash. If you have a free and clear trade in worth $2,000, then your trade ins equity ($2,000) can be used as down payment with no cash out of your pocket.
Second, my top bad credit lender, Credit Acceptance Corp, who guarantees credit approval for everyone only requires $500 down payment. Is that all you'd want to put down though?
If you are in a tough spot and truly need a car now, but don't have much money to put down, then you're in a bit of a tough spot and will essentially be at the mercy of the lender and probably won't have a great selection of vehicles to choose from.
If you can, wait and save up. You will have more vehicles to choose from, a better chance of getting approved, possibly get better rates (more money down = less risk to the lender), pay less in finance charges, have lower monthly payments and have equity in the vehicle faster.
No money and/or limited money down may be possible, but after looking at the benefits of putting more money down, I'd have ask, "why would you want to?"
Will You Need a Cosigner
Before I answer this, let me show you the two times a cosigner does help:
- When someone has very limited credit or no credit at all and needs a credit boost. This would be like a 20 year old college student having having mom, dad or a grandparent cosign.
- When someone has average to above average credit, but needs a cosigner to show more monthly income. This would be along the lines of someone that has decent credit, but only makes $1300 a month and the lender requires a minimum of $1800 a month.
Outside of those two scenarios, lenders are not tripping over themselves to approve cosign auto loans with bad credit. In fact, a lot of lenders won't accept them at all. In other words, even though your cosigner has an 800 credit score and your score is a 480, don't expect to get an easy approval with prime rates.
If you haven't done so already go ahead and Apply for your no obligation auto loan now and you'll be paired up with a local loan specialist that can help you get approved and get you into your new car.
What Kind of Car Can You Buy?
Now that you've learned a bit about your credit and are on your way to having the money to buy, the next question is what kind of car "can" you buy? Better yet, what kind of car "should" you buy?
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