Bad Credit Car Loans Advantages and Disadvantages [infographic]
Are you in a bad credit situation and now in need of a car loan? In this article, we will explain everything you need to know about bad credit car loans and our Fresh Start Buy Here Pay Here program.
In this article:
- Where do I start with my current credit situation?
- How we are able to approve customers with bad credit
- Understanding the Specifics
- Car Loan Statistics
- What a 60-month Auto Loan Looks Like
- Steps in Finding the Best Car Loan
- How does the Fresh Start Program stand out from its competitors?
- Understanding Buy Here Pay Here
- What Documents to Bring With You
- Factors that Determine Approval
- Rewards for Good Behavior
- You Got the Loan, Now What
My Credit is Bad, yet I Need a Car Loan. Where do I start?
The sad truth is that buying a new car usually requires excellent credit. Depending on the car dealership you are dealing with, you may need a credit score of 650 or more to get financing with most dealerships.
But that’s not true with us!
You may be wondering how you can get going with an auto loan without having to present proof of excellent credit. We have shoppers every single day who buy a new or used vehicle from us with as little as $495 and no down payment!
You read it correctly!
Yes, you can purchase a car with a downpayment of only $495.
At World Auto Sales, we have multiple loan programs available for buyers: for those who have established(good) credit, those who are just starting out and bad credit car loans programs for difficult credit situations including those with bad credit, bankruptcies, divorce situations, charge-offs, etc.
While most dealership demanding at least 10 percent down or $1,000 (whichever is greater), we find you an auto loan that will work with your credit and your goals on getting a new vehicle so you can drive away in style.
How Do We Approve Customers With Bad Credit
At World Auto Sales, we are expanding our services to include everyone who wants a vehicle who cannot purchase a car through the traditional means. Maybe you cannot afford a regular credit loan due to past credit history or other issues. That’s okay. We are connected to exclusive lenders who offer affordable payments and terms that you can live with.
Our goal at World Auto Sales is to offer auto credit financing to virtually anyone who needs a car, regardless of past credit history. We don’t want to turn anyone down, and we rarely do! Just bring in your car that you currently have and any paperwork to show your finances, and we can structure a good loan for you through using one of our programs.
Let’s Get Real.
Of course, this does not mean that you can afford a $20,000 car if you only make $2,000 per month. You need to prepare and be sensible about your budget before you start shopping for a car. That way, you will be more likely to get the car you need that will fit into your budget.
Understanding the Specifics with Bad Credit Car Loans
If you take out a car loan with bad credit, you can expect to pay a higher interest rate than people with perfect credit. This is just the way it is when it comes to financing. Lenders calculate their risk based on several factors. People with worse credit tend to be late on payments more often and have more charge-offs. So this is the loan companies’ way of protecting themselves from a loss in the event you cannot see your loan through to payoff. That way, they get at least some of their interest back along the way.
But our loan companies, like us, also want to give people a second chance. That’s why we offer connections to all of these great finance companies and our Fresh Start Program. We want you to have the benefits of a second chance car deal so you can have a better vehicle.
Car Loan Statistics
Experian Automotive, an agency that reports statistics on car borrowers, indicated that about 28% of new car buyers and 54% of used car buyers had a credit score that was below 660.
660 is considered the cutoff score for “good credit” borrowers.
The first step in getting a car loan is knowing your credit score. You can use tools like Experian’s credit score tool at freecreditreport.com or Capital One’s CreditWise app to find out where yours currently stands.
Borrowers who have credit scores below 660 are considered a higher risk to credit companies. Many companies and credit agencies group them like this:
- Nonprime: Borrowers with scores between 601 and 660
- Subprime: Borrowers with scores between 501 and 600
- Deep subprime: Borrowers with scores below 500
On average, subprime and deep subprime buyers make up 32 percent of used car loans, and a bit more than 10 percent of new-car loans.
Average used-car buyers with a nonprime credit score receive an annual interest rate of 9.29 percent for their auto loans, according to the Experian report. A subprime buyer gets an average interest rate of 15.72 percent. Deep subprime buyers have an average interest rate of 21 percent on their purchases.
The average new-car loan among the nonprime, subprime and deep subprime credit groups on average was $27,159 compared to $16,333 for used.
Please refer to Infographic below to better understand the approval process. Download Bad Credit Car Loan Infographic
Stay with your budget
In the famous book, You Need a Budget, Jesse Mecham discusses the importance of organizing your budget in terms of priorities. Rather than thinking about what you can’t afford, think about what you want to purchase and what is most important to you. If it is important to purchase a nice new vehicle that can get you to where you need to go and give you a sense of pride, then you may need to lower some other expenses so that you can afford it.
Working with us, you’ll be able to stay on your budget while purchasing a vehicle. We will make sure we find you a car loan that will allow you to do just that.
What a 60-month Auto Loan Looks Like
For a 60-month loan of $17,000 with scores below 660, here are the interest rates you might receive considering you will put $1,000 as a downpayment.
- Nonprime: 9.79 percent for 60 months = $338.30 per month
- Subprime: 15.5 percent = $384 per month
- Deep subprime: 21 percent = $432 per month
Steps in Finding the Best Car Loan
We’ve outlined the most important steps you can take to secure a new or used car loan with us. This should serve as a basis so you can do a little research. Then bring in your information, and we’ll take care of the rest and find you a loan!
- Step 1: Use a tool such as Annualcreditreport.com to get your current credit score. Even though it may not be the same as what we find when we run your credit at World Auto Sales, it will give you a starting place to understand how much of a car you can afford.
- Step 2: Start saving for a down payment. Though we try to save you as much money as possible, you may still have to make a down payment when you purchase with us. So you should save up at least around $1,000 to make sure you have enough to make a payment to get the contract started. If you can afford more, it is to your advantage because the creditor will know you are serious about the loan and it may increase your chances of qualifying.
- Step 3: Look over our inventory and check out the vehicles we have in stock. If you think you cannot afford a new car, take a look at the used ones we have on hand. We have many beautiful models and makes to choose from.
- Step 4: Go to our website or apply for a loan in person at World Auto Sales. We are connected to hundreds of potential lenders who are looking for people just like you who want to get a car but cannot use traditional credit routes.Our lenders offer prime, subprime, and other types of auto loans, so your chances are excellent that you will be approved!
- Step 5: Smile! You’ll soon be driving out of our lot with your new car with payments you can afford!
How We Stand Out from our Competitors
You may have heard about other car loan companies that offer similar “bad credit loans.” But the difference is that we know our lenders. We already have an established relationship with them, and we can tell you which ones will be most likely to approve your loan based on your situation.
Not all lenders have the same requirements, and every borrower is different. We analyze all of the lenders and send your applications only to the ones we think you have the best chance with. This means far less frustration for you! It also means you’ll be driving home in a new car faster!
Buy Here Pay Here!
We make things even simpler for you by offering the BHPH (“Buy Here, Pay Here”) option that allows us to collect payments through a finance company that has relaxed criteria for approval. This means that you can purchase through us and pay through us each month. We also report your payments monthly to the major credit bureaus to help you improve your credit score.
Documents to Bring with You
Below is a short list of documents you will need when you come in to apply for a car loan with us:
- Pay stubs (proof of income) or W-2 forms
- Bank statements or job Letter from Employer
- Utility bill or rental agreement
- Proof of residency
- Personal references (if needed)
- Driver License or State ID
How to Choose the Best Car for Your Needs
Price is important. But you should also choose a car that you are going to love driving for a very long time. After all, a car is a big investment. Go for quality over color or style. You can always give your car a paint job later, but you can’t often improve on quality without a lot of expense.
Choose a used car if purchasing a new one is beyond your budget. Don’t overextend yourself to get into a loan that you will have to cancel later. This will only hurt your credit rating. Your goal should be to get the best car for your money while using the loan to repair your damaged credit rating.
Factors that Determine Approval
There are some factors that help determine whether a lender approves a car loan. Below are some of the most significant ones we have noticed.
- Buyer’s credit history
- Vehicle make/model
- Vehicle age
These factors are all critical when the lender is analyzing an application. There are some scenarios that could result. For example, you may want to purchase a sports model with over 100,000 miles on it. This car may be cheaper than the newer car with only 50,000 miles on it. But the lender may not approve the cheaper car. Why? It’s not necessarily because it is cheaper, but because there is more street value left in the new car. Think of this as collateral that the lending company can use to get their money back in the event you default on the loan.
Though there is a way for you to get a car loan with bad credit, you will always have to remember that the subprime lending program will limit the kinds of cars you may be able to finance. But no worries, because we are here to help with that.
We love helping our customers get in the car they want. Just remain flexible. But give us a call, and we will serve as your car loan consultant. We can talk to you about the different types of cars and which lenders are going to be most likely to lend you money for them. Then we’ll help you with your application and get you approved.
Rewards for Good Behavior
The great news is that, once you’ve been approved for a car loan, it means that they trust you to pay it back over time and you can start working on your credit, one day at a time. Generally speaking, after 18 months of good payments, you’ll be able to have your interest reduced a bit.
You may also have other options available like trading in the car to purchase a different vehicle with a lower interest rate or refinancing your loan with a different lender. Working with buy here pay here car dealer that you have established a good relationship with will benefit you in the long term. It’s the only way to do it that makes sense.
Once You Get the Loan
Once you have received your loan, vow to never be late on a payment, since the credit bureaus keep track of this. Make additional payment when possible or make a slightly higher payment than the minimum when you can. This will improve your credit report, as well and the lender will appreciate your efforts to improve your standing.
Always communicate with your lender if you think a payment will be late. They can help you work through temporary setbacks, as long as it does not become a habit.
You should use this opportunity to improve your credit and improve your quality of life by opening up doors for future better opportunities for loans if you need them.
At World Auto Sales, we value our customers, and we want to help them get back on track and into a new car today! Call us at 215-624-4550, on our website read articles to check out the latest inventory. We also have a loan calculator on every vehicle page as well as credit application for fast and easy approval. Visit us in person and on Facebook to learn more about what we do.
We look forward to hearing from you!