Getting pre-approved for an auto loan with bad credit is more difficult, but not impossible. If you qualify, a pre-approval can take a lot of the hassle out of haggling over financing during the car buying process. It isn't always possible to get pre-approved if you have bad credit, but we can tell you where to start.
Getting a Pre-Approval from a Direct Lender
A pre-approval is usually considered the way to go when you need an auto loan. There are several reasons for this, but chief among them are these two things: you typically get a better interest rate, and you know how much you're approved for from the start.
Banks are publicly-owned, for-profit businesses and can usually offer the best interest rates for their customers simply because they're so large. Because you apply directly with them, banks are considered direct lenders. Indirect lenders, on the other hand, work through car dealers. The finance managers at these dealerships work with these lenders on your behalf.
What if you belong to a credit union instead of a bank? It may be easier to get pre-approved if you're a member in good standing. Credit unions, another type of direct lender, are member-owned, can often offer borrowers better rates and terms than large banks since they're non-profit businesses.
Direct lenders offer excellent pre-approval deals. However, they generally only provide these rates to borrowers with good credit scores, so getting pre-approved with a bank or credit union with bad credit can be difficult.
3 Tips for Getting Pre-Approved for an Auto Loan
How do you qualify for a pre-approval for an auto loan? Here are three tips to help you get pre-approved for a car loan:
- Get your credit reports and credit score – Before you apply for any loan, you should know where your credit stands. This means getting both your credit score and credit reports. When you know what the lender is seeing, you have the opportunity to research rates and terms available to people in similar credit situations. This way, you have a better idea of whether or not you're getting a fair deal.
- Prepare your documents – You typically have to provide documentation to the lender in order to be approved for an auto loan, especially if you have bad credit. These documents include proof of income, proof of employment, and proof of residence. Some lenders may also require the year, make, and model of the vehicle you plan on buying before they can offer you a pre-approval, so you should at least have an idea of what you're looking for.
- Rate shop – Rate shopping is the process of applying for the same type of loan with several different lenders. Since they offer different rates and terms, it's a good idea to rate shop to find the best deal. If you do this in a short period of time, typically 14 days, all of the hard inquiries made for the same type of credit only count against your credit score as one single hard inquiry. This is known as the rate shopping window.
Rate shopping can be more difficult as a bad credit car buyer. Not all lenders work with consumers who have less than perfect credit, but we can help you find those that can.
Can't Seem to Get Pre-Approved?
When you’re looking for an auto loan, you should always check with your bank or credit union first to see if you can get pre-approved. If that isn't in the cards, we've got you covered at CarsDirect!
We work with a nationwide network of special finance dealers that have the lending resources you need to get a car loan even if you're struggling with bad credit. These lenders specialize in helping people get approved for financing even if they have bad credit, no credit, or other credit issues like bankruptcy.
By filling out our free and easy auto loan request form, we can begin connecting you to a local dealership that can help. What are you waiting for? Get started right now!