Buying a Car with Bad Credit
For most people with bad credit, the process of buying a car is nearly the opposite of the traditional car buying process.
The steps to financing a car
The first step that anyone should take when buying a car is to check their credit report. This will give you an idea of where your credit stands and, if you’ve given yourself enough time, a chance to correct any errors before you apply for a car loan.
Once that’s been taken care of, the next step is one of timing. Since the VantageScore scoring model only allows for a 14 day window before it assigns multiple inquiries to the same loan process, you’ll want to make sure all your loan applications are completed well before 2 weeks are up.
The third step is to apply for a loan at your own bank or credit union (here, a credit union is the preferred lender, especially if you’re a well-established member in good standing). If you get approved, we would also suggest going online to a national lender such as Capital One and also applying there, so you have at least two loan quotes before visiting a dealer.
Finally, if you’ve been turned down at those traditional lenders, the next step is to visit a large dealership with a special finance department. Here, size does matter because large dealerships deliver hundreds of cars a month and send a lot of business to their banks. This gives these dealers more leverage with lenders and they can often get deals done that smaller dealers cannot.
The bad credit car buying process
Lenders who offer loans to people with poor credit credit are known as subprime lenders. Most subprime lenders are indirect lenders - that is, they only work through the finance departments of dealers that are signed up with them and don’t directly deal with car buyers.
The process for financing a car through one of these lenders is nearly the opposite of the traditional car buying process.
First, buyers fill out a loan application (if they haven’t done this already online with the dealership of a lead provider) and are then interviewed by the special finance manager. The finance manager will then ask the buyer to provide evidence that what they’ve stated on the application is correct. This usually includes a valid driver’s license, current pay stub, and landline or cell phone bill based on a contract (no burner phones or pre-paid plans are acceptable).
The finance manager then transmits the application to one or more lenders.
If the application is approved, the lender will transmit the approval in the form of a payment call. The payment call includes the lending tier and maximum monthly payment the buyer qualifies for, along with the down payment requirement and any other requirements the lender has.
At this point the finance manager compares the payment call with vehicles in the dealer’s inventory, and picks out the vehicles that meet the lender’s requirements. These vehicles are then shown to the buyer who can test drive any or all of them and choose the one that best fits their needs and budget.
Finally, the paperwork is completed, the down payment is paid, all the documents get signed, and the buyer takes delivery.