According to researchers, around 108 million people have either a low credit score or no score at all. This means their number is lower than 670, which is generally considered a “good” score.
Do you fall into that category? If so, you might think your odds of securing an auto loan are slim to none. Thankfully, that isn’t the case. Low credit score loans are designed just for people like you, and the application process is easier than you might think.
You don’t have to give up on your dreams of owning a car just because your credit isn’t where you’d like it to be. Today, we’re sharing how low-credit online car loans work, and how to get started.
What Is a Low Credit Score Loan?
As its name implies, a low credit score loan is designed for applicants whose credit scores aren’t considered to be in the “good” or “high” range. Bad credit auto loans work in a similar way to traditional auto loans, but there are special adjustments made based on your credit standing. You might have heard these types of loans referred to by other names, including:
- Subprime car loans
- Second-chance car loans
The most important thing you need to know is that these types of loans usually carry higher interest rates. These are in place to protect your lender, who will be the one shouldering the cost if you default on your payments.
Let’s take a closer look at how these lending arrangements work.
What Is Considered a Low Credit Score for an Auto Loan?
When considering applicants for an auto loan, most lenders consider a “low” score to be one in the mid-600s or below. This is true in the United States and Canada. Here, credit scores are generalized into these categories:
- 660 to 724: Good
- 725 to 759: Very good
- 760 to 900: Excellent
Keep in mind that the different scoring models will have their own guidelines and tiers, so research the one your lender uses before you apply. You may also work with a lender that works with a type of FICO model that’s specific to the auto industry.
The good news? While your credit score is important, it isn’t the only factor that a lender will consider when reviewing your application for an auto loan. In most cases, there are other factors at play, including:
- Your income
- Your bill payment history
- Your length of employment
- The amount of debt you owe
- The total amount of the loan
If your credit score is on the low side but all of these other elements are in great shape, then you could qualify for a traditional auto loan. Otherwise, you can apply for a low credit score loan.
In addition to higher interest rates, these loans usually have shorter terms. This means you’ll pay more in the long run, and you’ll have to pay off the loan sooner. Again, these protections are in place to safeguard your lender in the event that you can’t keep up with your payments and you have to default on the loan.
Where to Find Low Credit Score Loans
If you know that these loans will work best for your situation, the next step is to find a reputable lender. There are a few different places you can check.
It’s smart to apply to more than one lender, as their requirements may vary. One may be more willing to work with you, even if another turns you away. By staying the course, you should be able to team up with a lender who can meet your needs.
Let’s take a look at each one.
Banks and Credit Unions
Most auto loan applicants start with their local bank or credit union. Also known as direct lenders, these can be convenient options. However, they aren’t always as willing to work with applicants who have low credit scores.
The best way to secure a loan through this traditional route is to make sure your accounts at the bank are all in good standing. If they are secure, you might be able to find a lender who will work with you here. These direct lenders can have physical locations, though most will also offer online services.
Auto Dealerships
Most auto dealers have financing services available on-site to help prospective drivers get behind the wheel of their dreams. Here, you may also be able to find bad credit auto loans. Finance officers at the dealership can work directly with local banks to set up the loan.
When they do, they’ll usually retain a portion of the amount that you borrow. This could be a flat fee or a percentage of the total loan. While this might sound like a good setup, remember that it could cost more, especially when you add the dealership’s fee into the equation.
In addition, the dealership also retains a degree of control over the loan. This means they can adjust your interest rates, as long as they follow your lender’s guidelines. If you really want to go this route, it’s best to secure another, lower offer first and present it when you apply.
Online Lenders
Today, the easiest, fastest, and most effective way to secure a low-credit car loan is to work with an online lender, like CarsFast. Our team has access to a vast auto finance network, and we’re well-versed in assisting people with all types of credit. When you team with us, you can expect benefits such as:
- Lower interest rates
- Lower payments
- Quicker service
All you have to do is complete a short, two-minute application. Then, we’ll show you some of the best rates that you’re pre-approved for based on your answers. You can compare quotes from some of the best vendors in Canada, which allows you to save money and get started quicker than you thought possible.
How to Choose a Low-Credit Auto Lender
Whether you go through your bank, auto dealership, or an online platform like CarsFast, it’s important to know the qualities that define a reliable low-credit auto lender. You never want to share your personal information with an unscrupulous party who will use your poor credit standing to weasel you into unfair terms.
Here are a few questions to ask as you assess your options.
What Is Your Policy on Co-Signers?
If you have poor credit, you could be eligible for better loan terms if someone with better credit co-signs on the loan. While this is a great option, not all lenders will allow it.
If you think that you might need a co-signer to qualify for your auto loan, check with your lender. This can help you narrow your search to only those who will accept co-signers.
Do You Have a Credit History Requirement?
The issue with your credit might not be that it’s low. You might not have any credit at all! This is known as being credit invisible.
For some lenders, this could be a deal-breaker. For others, it isn’t a major concern. Ask your lender what their stance is on credit history.
If they require it, then continue your search elsewhere. There are plenty of lenders that do not have a credit history requirement.
Do You Report Payment History to Credit Bureaus?
The two largest credit bureaus used in Canada are Equifax and TransUnion. If you make regular, on-time payments toward your auto loan, your lender should be able to report those payments to the bureaus.
Over time, this reliable payment history can help boost your credit score. Future lenders can look at his history to see that you’re a reliable applicant, which can improve your creditworthiness.
Can You Perform a Soft Credit Check?
A soft credit check is one that does not go against your credit score. Many lenders will perform one during the pre-qualification period. This way, the inquiry does not drag your score down even further.
Pre-qualifying for a loan is a smart idea. It allows you to view all of your options and see if you’re even eligible for a loan at all.
How to Improve Your Chances of Securing a Low-Credit Auto Loan
Although low-credit auto loans typically come with higher interest rates and shorter terms, they can be viable options for many applicants. If you’re ready to purchase a car but need help with financing the expense, it helps to be as proactive as possible. Here are a few important steps you can take.
Improve Your Credit Score
Before you begin applying for loans and comparing lenders, look for ways to improve your credit score as much as possible. A few of the ways you can do so include:
- Commit to paying your bills on time
- Pay down your revolving credit balances
- Check your credit reports and correct any errors
- Raise your available credit limit
When you increase your credit limit, it effectively lowers your credit utilization rate, which can be appealing to potential lenders. However, before you take this step, make sure you can handle the higher limit without overspending.
Apply a Down Payment
The less you have to finance, the lower your loan will be. The premise is simple, but many new drivers still wind up financing the entirety of their purchase.
If you can afford to wait, spend a few months saving as much money as possible. Not only will a down payment help you qualify for an auto loan, but it will also lower the overall amount of the loan. This means you’ll pay less in interest over its lifetime.
Some lenders are willing to process a loan without any type of down payment, though many will require it. If you can put some money down at first, it sends a good signal to the lender. It proves you are financially stable enough to save your money, and that the risk of defaulting on your loan is low.
Make an Auto Budget
This step might seem overly simplistic, but it’s an important one. Never start shopping for an auto loan without creating a budget first. It’s easy to get stars in your eyes, especially when you see all of the new models on the dealership floor.
However, it’s important to know where you stand. If you take on a loan that you know is beyond what you can afford, the lender could repossess it if you fall behind on your payments.
When considering how much you can realistically pay, remember to think beyond your minimum monthly loan payment. Owning a car is a major expense, and comes with lots of variable costs. These can include:
- Paying for fuel
- Repairs and maintenance
- Auto insurance
- Property taxes
- Parking expenses
Factor all of these costs into your general budget, and keep that number in mind as you compare lenders.
Consider the Lifetime of the Loan
When applying for an auto loan, make sure you understand the terms before you agree to anything. While you might be tempted to stretch the timeline in exchange for a lower monthly payment, this doesn’t actually save you money.
In fact, the longer your loan goes on, the more money you’ll have to pay. A longer auto loan term means you’ll likely end up paying additional interest over the length of the loan. If you can afford to pay off the loan quicker, you’ll save money, even if your interest is high in the short term.
Find and Compare Low Credit Score Loans Today
If you’re shopping for a car, you know that the process can be both exciting and exhausting. This is especially the case if you’re looking for low credit score loans.
It can be challenging to find lenders, compare their terms, and know you’re getting a great deal.
This is where CarsFast comes in. Once you complete our application, we’ll connect you to lenders who are precisely matched to your unique needs. No more crossing your fingers and hoping you get it right.
Ready to get started? Begin your application right now, no login or sign-up required!