Car Loans for People with Bad Credit
Traditional lending sources for auto loans include:
- Credit unions
- The lending department of car dealers (like GMAC, CarMax, Ford Credit)
These sources are the primary lenders for automobile loans. They do not normally provide loans to individuals with bad credit, a recent bankruptcy, zero down payment, low income, or a previous vehicle repossession.
Bad Credit Auto Loans
If you cannot get approved for an auto loan through these lenders then you may have to try to obtain an auto loan earmarked for people with bad credit. These loans are also called second chance car loans or credit repair car loans.
Bad credit auto loans are usually initially funded by the auto dealer. However, later they are either assigned or sold to a specialized finance company. In some cases (like where you see a Buy Here, Pay Here sign) a third party payment processing firm may take over servicing the loan for the dealer.
Qualifying for a Bad Credit Auto Loan
Although, the guidelines on these loans might be less stringent, not everyone can qualify for a bad credit auto loan. People who do not qualify include individuals with:
- Temporary or seasonal employment
- Income that cannot be verified
- A recent repossession that was not included in a bankruptcy
- Military residence outside of North America
The essential qualifications for second chance auto loans are:
- The ability to obtain automobile insurance
- American or Canadian citizenship or proof of legal residency
- Full time employment or the ability to prove a guaranteed fixed income for the term of the loan
- A documented monthly income of at least $1,500 per month
- Proof of residence with a utility bill or credit card statement
- A working phone number
Advantages of a Bad Credit Auto Loan
Your payment history will be reported to the credit bureaus. So, one advantage of these loans is that they allow you the ability to reestablish your credit.
The loan terms generally start at 24 and go up to 60 months, giving you ample time to pay. There may also be a large variety of vehicles to select from.