November 02, 2023
When you have bad credit – say, a credit score around 550 – getting approved for a car loan can be difficult. While you should try for a pre-approval with your bank or credit union, you more than likely are going to need a subprime lender. These lenders work exclusively with bad credit car buyers and are able to offer financing to many of them. We can help you get connected to one, but first, we want to explain just what you need to do to get a bad credit auto loan.
4 Things to Keep Track of When Financing a Car
Subprime lenders work through special finance dealerships and offer car loans to borrowers struggling with credit issues. These lenders run credit checks but consider outside factors to determine approval. You need to have the proper documentation ready before you head to the dealer, such as proof of income, proof of residence, and proof of a working phone.
Also, you need to keep track of these four things before you start the financing process:
Credit scores and reports – Know where your credit score stands, and what’s on your credit reports. You’re entitled to a free copy of your credit report every week from the three major credit bureaus by visiting www.annualcreditreport.com. As for your credit score, most lenders look at your FICO score, and if your bank or credit card company doesn’t offer a free FICO check, you can see yours for a fee through a number of websites and services.- Finances – Know what your budget is, and how much you’re willing and able to spend on a vehicle. You need to consider additional expenses of car ownership, such as fuel, insurance, and maintenance.
- Interest rates – Look up the current interest rate trends, and see what people with your credit score range are getting. You should, if possible, also rate shop to see what different lenders are willing to approve you for so you can pick the best offer.
- Down payment – A down payment is usually required with a bad credit auto loan. The minimum amount needed varies, but most subprime lenders ask for a down payment of at least $1,000 or 10% of the vehicle’s selling price, whichever is less.
Credit scores and reports – How to Increase Your Approval Odds
As long as you meet the lender’s minimum requirements, you shouldn’t have an issue getting approved for a loan. However, if possible, you should try to increase your approval odds. Two common ways to do this include:
- Adding a cosigner – Not all subprime lenders require a cosigner, but having one on hand doesn’t hurt. Adding a cosigner to a car loan could get you a better interest rate and make the overall cost of the loan cheaper. Your potential cosigner must have good credit and a qualifying income.
- Making a larger down payment – We recommend that you make the largest down payment you can comfortably afford if you have bad credit. The reason is that you end up saving money, and this can really make a difference considering borrowers with bad credit typically qualify for higher interest rates. You can use cash, trade-in equity, or a combination of both to come up with a down payment.
Dealerships That Offer Car Loan 550 Credit Score
When you have a credit score as low as 550 and are on a tight budget, where do you go to find the right auto financing? You could try to get pre-approved for a bad credit car loan with your bank or credit union, but these lenders place a heavy emphasis on your credit score to determine approval.
Instead, you likely need to find a local special finance dealership that’s signed up with subprime lenders. Subprime lenders specialize in financing credit-challenged car buyers, but they have additional requirements you need to meet in order to get approved.
Subprime lenders have rules as to the least amount they can extend for financing, with the minimum typically set at $5,000. In addition, subprime lenders typically require a down payment. You can expect to be asked for the lower amount between $1,000 or 10% of the vehicle's selling price, although this varies by lender.
This means that if you want to finance a car worth $5,000, you would only need $500 to meet the down payment requirement. While it's okay to settle for the minimum down payment, a larger down payment makes your auto loan more affordable.
The Bottom Line
If you have a 550 credit score, you may still be able to get approved for an auto loan. In addition to the right documents, a possible cosigner, and a larger down payment, you also need to work with the right lender. The Car Connection is here to help you find financing.
Here at The Car Connection, we help bad credit car buyers by connecting them to local special finance dealerships that are signed up with subprime lenders. That’s not all we can do, though. With our new and used car sections, you can see what vehicles are for sale near you, and compare different cars to narrow down exactly what you need.
We work with a nationwide network of dealerships that have the lending resources available for people struggling with credit. Get started today for free by filling out our car loan request form.
