Last Updated On: September 20, 2016

How to Qualify For A Car Loan With Low Credit Score – 5 Easy Steps

If you need a car loan and your credit score is not as high as it should be to qualify for a good APR, here are five easy steps you can take to improve your chances for landing a good deal on a car and a lower interest rate for your auto financing.

When you have a low credit score, you need to be very selective when it comes to choosing an auto loan lender that will give you the best interest rate and a car dealer that won’t make a profit out of your loss.

Five Easy Steps To A better Car Deal

  • Check your credit score yourself – Check your score online, correct mistakes, know your credit category and your budget.
  • Meet these simple criteria – All the needed information for a complete loan application.
  • Learn dealer scams you will encounter – learn the the latest facts about dealer scams, tricks and and financing scams.
  • Choose the correct lender to successfully qualify  Too late to fix your credit score? You can still qualify for a good car loan!
  • Shop around at auto dealers and private car sellers  You may not have a large down payment, so that makes finding a lower selling price even more important.

How to Qualify For A Low APR Loan With Bad Credit

The fact is that your credit rating sets the stage for most great auto loans and low monthly payments. But if you have slow credit or bad credit, you are not alone and you are certainly not the exception.

Experian Automotive‘s recent report findings show that 28 % of new car buyers and 54% of people that bought used cars had a credit rating that was below 660. Typically these car buyers are categorized as having less than perfect credit and lenders will consider them a higher financial risk.

If you have a credit score between 620 and 600, your credit is less than perfect but not bad. You are considered to have below average credit if your score is between 600 and 550. A credit score between 550 and 450 will earn you a bad credit rating, and you will need a special financing auto loan to qualify for most car loans.
On average 10% of new vehicles and 32% of the used cars financed are for people with subprime or bad credit scores. This means that the average subprime or bad credit car buyer received an interest rate between 15 and 19 percent.

Bad Credit Car Loan Steps

Let’s look at five steps that will help you improve your chances of qualifying for a lower interest rate and land the best car deal.

The first step to qualifying for a good car loan with lower interest is to check your credit score and find where you stand with your credit rating. You can do this online for free. TransUnion, Equifax and Experian offer credit reports that make up your credit rating. Our resource page offers a link where you can get free credit score evaluations. You also have the ability to get monthly updates if you choose to sign up.

Knowing your present credit score will allow you to use tools like online auto loan payment calculators to estimate car loan payments, It will also help you know what type of auto loan lender you should apply with to be approved for your vehicle loan.

If you use dealer financing, it can also help you to know if the finance agent is offering you a fair interest rate or if he is taking advantage you with an overpriced auto loan.

This credit rating chart can help you understand how you fit into the loan category rating system.

  1. Decent | 625 – 600
  2. Average | 600 – 575
  3. Below Average | 575 – 550
  4. Semi-Poor | 550 – 525
  5. Poor | 525 – 500
  6. Bad | 500 – 450
  7. Awful | 450 – 425
  8. Terrible | 425 – 400

You should understand that there are ways to rebuild your credit, but they take time and planning.

If you think you have mistakes on your credit report, by all means, contact the credit agency and have them corrected as soon as possible, before you apply for your car loan.

If you need a car now and are satisfied that your credit report is accurate than you will have to work with the score you have for now.

You will need to review your personal budget and plan what you can afford for monthly payments. Again an online auto loan calculator is a helpful tool in estimating what you can afford with the down payment you are planning to use.

So you have your credit score, you know what car price range you can afford and what your monthly payment estimate will be. The next step is to make sure you will be able to meet the auto lenders requirements for a bad credit loan approval application.

  • You will need to show a monthly income of $1,500 or more per month that can be documented with a tax document.
  • You need to be a legal resident of the United States and have a Social Security number.
  • Do you have continuous full time or part time employment or a fixed income that can be documented?
  • Can you give an actual street address where you live and not just a PO box number?
  • Do you have a working phone number where you can be contacted?
  • Can you give a business phone number where your employer can be reached?
  • Do you have the vehicle information if you are purchasing a vehicle from a private seller such as make, model, mileage and loan amount?

If you are applying for a new car auto loan or pre-approval car loan, you will not need the vehicle info yet.

OK, for step 3 you will need to take a few minutes and sit down with a notepad and do some online reading to update yourself on car dealer scams and tricks.

Almost any car dealership you visit, you will find car dealers that are trained to use negotiating tactics on you. Take note of any car financing scams or dealer tricks that you need to try and avoid that you may feel extra vulnerable to.

Valley Auto Loans can help you with all of this with their Avoiding Car Dealer Scams and Pitfalls page. You will be surprised how many people think they are getting a good deal on a car only to find out that the dealer overcharges them on everything from the price of the car to the financing they used to get the vehicle loan.

Step 4 involves your credit rating and is simple. If you want to qualify for a good car loan with subprime credit, then use a lender that will accept your credit for what it is.

Shop different subprime auto lenders or low-income loans and look for the best interest rate. You can do this in one of two ways.

You can apply to a lot of different lenders yourself, or you can use an auto loan broker like Valley Auto Loans.

Applying for financing yourself is time-consuming and puts lots of hits on your credit report. Using a broker lets several credit lenders review your loan application, so you get the best deals from the lending pool without lots of different credit checks.

Step 5 includes shopping around for a car and doing some price comparing on the internet.

If you have slow credit, your biggest challenge is finding a good quality car with low monthly payments. If you have bad credit, you may not be able to do much with the interest rate you qualify for, but you can still achieve a lower monthly payment.

Applying a large down payment is the easiest way to get a lower monthly payment. However, most folks do not have much cash for a hefty down payment, so the next best thing is to get a low price for the car you purchase.

Shopping around, not taking the first deal that comes along and using the information found in the New Cars and Used Car Buyers Guides can help you turn a good car purchase price into a great car deal. You will need to use your negotiating skills you learned in our “New Car Buying Guide” to land that fair car price.

Good credit or bad, the more you save on the actual sticker price of the car automatically gives you a lower monthly payment. That is why it is important to have these great car price negotiating skills before you shop.

After planning and taking the proper steps for your car loan you will be able to easily apply for a fast response from the financing lenders to qualify for the best interest rate auto loan regardless of your low credit score and negotiate the best car deal like a pro.

Applying for a car loan with Valley Auto Loans gives you many advantages over applying to lenders individually. There is no application cost and no obligation to accept the loan offered to you.

You will have the satisfaction of knowing you were able to get the best car and auto financing available for your credit history at this time. If it is not the interest rate you were hoping for you can refinance the loan after you allow your new car loan to build some good credit history.

You do not have to keep the loan for the entire term of the car loan. Your bad credit loan can be used as a stepping stone to getting a really great car and better credit down the road.