If you’re not proud of your financial history, you’re not alone. Learning how to manage money effectively isn’t always easy. But if your poor financial past is impacting your life now, it might seem impossible to get out of this financial turmoil. If you can’t get approved for a car loan or even a credit card, it can be nearly impossible to increase your credit score.
It’s a common myth that you can’t be approved for a car loan if you have a low credit score. Buyers with poor or no credit can still find financing. Start by learning about second chance auto loans, which could be helpful if you’re really in need of a car.
Second Chance Auto Loans Explained
A second chance auto loan is exactly what the name implies: it’s a loan designed to give buyers a second chance. Regardless of what happened to hurt your credit score, a second chance loan can help you get back on track.
Not every lender offers second chance loans; because they are available to buyers with lower credit, they are inherently more risky for lenders. There are two main avenues you can take to get a second chance loan:
- Find a dealership with in-house financing. You can secure a second chance auto loan through many car dealerships that operate on a “buy here, pay here” basis. These dealerships often require a minimum income but don’t always require a certain credit score.
- Find a dealership that works with subprime lenders. Some dealerships partner with auto lenders that specifically work with low-credit buyers. You’ll still need to meet some requirements but will have an easier time securing a loan compared to applying with a standard lender.
Lenders that provide second chance auto loans understand the increased risk of loaning money to buyers with poor credit. So, these companies want to be protected if you can’t make your payments. They charge higher than average rates, require more verifications and stipulations per their approvals, and some will require your vehicle to have tracking software or a starter disabling mechanism so they can retrieve their collateral if you don’t pay or are even driving around without valid insurance
Benefits of Second Chance Auto Loans
Second chance auto loans (also called “bad credit car loans” or “subprime”) offer several benefits. First and foremost, they provide financing to buyers who would otherwise be denied, and they help buyers secure transportation when they need it most.
On top of that, buyers can work on building their credit over time. Making regular monthly payments on the vehicle will help you steadily increase your credit score. You may eventually be able to renegotiate your loan with a lower interest rate. “Subprime” credit is considered to span scores from 400 to 619, so once you increase your score above this level, you will likely find it easier to secure better loan terms.
Many second chance loans require bigger down payments, which isn’t always ideal for those who don’t have much cash saved. If you need a car in a hurry, you might consider a qualified cosigner or even borrowing money from a family member or close friend. The bigger the down payment the better your approval odds and the terms.
Requirements to Get a Second Chance Auto Loan
Each lender has its own unique guidelines for second chance auto loan requirements. Often, lenders will require that you meet certain income requirements. “Buy here, pay here” dealerships will almost always need proof of income since you’ll be paying them directly.
Some lenders also require a certain credit score to consider approving a loan. If you don’t have any credit, consider choosing a “buy here, pay here” dealership, as they don’t always check your credit score.
Other documentation may vary depending on the lender you work with. You may be asked to provide proof of address, a driver’s license, or personal references.
What to Consider Before Applying
It’s important to first consider whether you truly need a second chance auto loan. These loans can be incredibly helpful for some, but they often come with steep monthly payments. Do your research on traditional auto loans and see if you can get approved before you consider a second chance loan. You may also consider working with a co-signer or borrowing funds from a credit union.
If you’ve exhausted other options, make sure you can take on a second chance loan. First, look at your income to make sure you can afford the monthly payments. Interest rates are often high with these loans, so pay attention to the terms of your agreement. You should also take note of any fees associated with your loan.
Think about whether signing a second chance auto loan will help you build your credit. Ask your potential lender whether they report loan activity to the credit bureaus. If they do, you can build your credit by making your payments on time each month. If they don’t report to the credit bureaus, you may be losing out on the chance to improve your score.
If you’re not able to keep up with your loan payments, there will be consequences. Find out whether your lender will install a GPS tracker or starter interrupter. (If they do install a device and you do start to struggle with payments, reach out to your lender immediately. Skipping payments will hurt your credit score even more. Instead, see if you can reach a modified payment agreement with your lender.)
Working with FA Financing
Second chance auto loans should not be your first choice when trying to finance a car. But if you’re in a tight spot and need a car quickly, a second chance loan could be just the break you need.
No matter what has happened to hurt your finances, FA Financing can help you move forward. We serve clients with poor credit, no credit, multiple car loans, recent bankruptcies, and more. Our team has more than 20 years of experience helping clients polish their loan applications and secure the most favorable terms.
Finding an auto loan can be stressful, even for those with good credit. But when you work with FA Financing, we do the hard work for you by finding the lenders you’re most likely to be approved by. We’ll work with you to make sure you understand the terms of your loan and that you’re comfortable with your payments and your new vehicle. FA Financing will do all we can to help you get a loan, purchase a vehicle, and get back on the road to financial recovery. Contact the FA Financing team today to learn more!
