5 Best Guaranteed Auto Loans for Bad Credit
Having bad credit can make it more difficult to qualify for an auto loan, but it isn't impossible. While no trustworthy lender will ever "guarantee" your approval for an auto loan, the lenders on this list have a reputation for being flexible when it comes to approving borrowers with poor credit.
The 5 best guaranteed auto loans
If you're in the market for a new set of wheels, you can avoid a lot of frustration by getting pre-qualified for financing before you shop. The following five lenders are a good place to start, as they work with people who need a bad credit auto loan.
In most cases, this means they consider other factors besides your credit score, making it easier for you to qualify for a car loan. While no reputable lender will guarantee you'll qualify for a loan up front, these lenders are known for working with people who have less than perfect credit.
1. Auto Credit Express
In business since 1999, Auto Credit Express works with borrowers who have a history of repossessions, bankruptcy, and other financial setbacks. There is no minimum credit score required to qualify for a loan, but you need to earn at least $1,500 in income a month.
According to the site, it takes just 30 seconds to apply, after which you'll be matched with lenders in the Auto Credit Express network. Depending on your credit profile and other factors, you may even qualify for an auto loan with no money down.
Car.Loan.com — not to be confused with CarLoan.com, which is a different company — is a loan marketplace that connects borrowers with a network of local auto dealers that offer financing to first-time buyers, people with bad credit, and even borrowers with past bankruptcies.
The company has been in business since 1994 and offers an online application that takes just three minutes to fill out. It's free to apply, and there is no obligation to accept a loan offer if you're matched with dealerships.
You can get up to four loan offers at a time by submitting an online application to the myAutoLoan.com network of lenders. If you're approved, you may be able to receive loan funds in as little as 24 hours.
Loan amounts and lender requirements vary, but myAutoLoan.com states that most borrowers will need to earn at least $1,500 a month to qualify. As with other loan marketplace sites, it's free to apply and there is no obligation to pursue a loan offer.
In addition to new car loans, you can also apply for used car loans, refinancing, or lease buyouts.
RoadLoans.com is a direct-to-consumer lender, which means it finances cars in-house and disburses loan funds itself for used cars and new cars. If your online application is approved, you can take your loan offer around to dealerships for up to 30 days as you shop.
According to RoadLoans, it takes about 60 seconds to get approved online. One downside, however, is that you're limited to shopping at dealerships that accept RoadLoans financing.
5. Buy-Here-Pay-Here Lots
Another option is to visit buy-here-pay-here lots. These are car dealerships that finance cars on site rather than require a buyer to go through a bank or other third party lender.
One of the advantages of a buy-here-pay-here lot is that most specialize in borrowers with bad credit. Rather than checking your credit score, they're likely to be more interested in your income and whether you have steady employment.
However, it's important to be careful with this type of auto financing. Buy-here-pay-here lots typically charge high interest rates, and some can offer predatory terms that take advantage of the desperate.
If you do your research, though, you may find a buy-here-pay-here dealer that helps you get the car loan financing you need. There are plenty of dealerships that offer decent terms, reasonable interest rates, and affordable loan payments.
What is guaranteed auto financing?
"Guaranteed auto financing", or loans with no credit check, refers to lenders that usually don't rely on your credit score when determining whether you qualify for a car loan. They also tend to be more flexible with their requirements, with many offering loans as long as you satisfy a monthly income threshold.
While they can't truly guarantee that anyone who walks through the door (or applies online) will qualify for an auto loan, they accommodate a broader range of borrowers compared to more traditional lenders, such as big name banks. Most guaranteed auto financing lenders will work with you even if you have bad credit (known as subprime borrowers) or no credit history.
Many guaranteed auto financing lenders are actually loan marketplaces, which match applicants with a network of lenders that offer bad credit car loans. These can be a valuable resource, as it saves you from all the legwork that comes with going from individual lender to individual lender, comparing and contrasting various terms and rates.
Even with bad credit or a history of bankruptcies, defaults, or repossessions, you have a decent chance of obtaining financing through a guaranteed car loan lender or lending website. Your chances go up if you earn a solid income and have a good employment history.
Things to consider with guaranteed auto loans
If you're thinking of applying for a guaranteed auto loan, there are several points to consider. As you prepare to submit your application, keep the following in mind.
Your credit score may still be important
Even if you plan on working with a lender that considers your income as a deciding factor, this doesn't necessarily mean you can forget about your credit score. On the contrary, the lender may still pull your credit and offer you a better rate based on your score.
For example, someone with a 550 credit score is likely to score a better interest rate than someone with a score in the 400s. Lenders may also look at things like how much debt you're carrying, whether you pay your bills on time, and if you lack credit history.
You can see where you stand ahead of time by ordering your free credit report online. Once you have your report from all three major credit bureaus, read through each one and check for any mistakes so you can dispute errors and hopefully improve your score before you shop.
Be flexible about your vehicle's make and model
If you have bad credit, it helps to be realistic about what kind of car you can afford. While you might have your heart set on a pricier model, you can often improve your chances of getting approved for a car loan if you're willing to buy something more affordable.
Consider making a down payment
Even a modest down payment can help lower your monthly payments and increase your chances of getting auto loan financing. Auto loan experts typically say to shoot for a 20 percent down payment, which will help you get a better interest rate.
If you don't have the budget for that big of a down payment, it's okay to pay whatever you can afford. Putting money down reduces the financial risk for the lender, so they might be more willing to work with you if you can offer even a few hundreds dollars up front.
Apply with a cosigner
You can often improve your chances of getting approved for an auto loan if you have a cosigner. If you know someone with good credit, asking them to cosign your loan allows you to piggyback on their creditworthiness.
Keep in mind, however, that your cosigner will be responsible for the balance of the loan if you default, and the lender will start calling and contacting them if you start missing payments. Be certain you can afford the loan before you ask someone else to sign on.
What to watch out for with guaranteed auto loans
If you’re in the market for a guaranteed auto loan, it’s important to understand the potential risks.
High interest rates
One of the drawbacks is with these loans are the high interest rates. The APR can be as high as 29% for buyers with bad credit scores, so if you’re looking to finance a car but don't have great credit it might not make sense in terms of your finances.
Building your credit
If you want to build your credit with this type of loan, make sure to check the lender is actually reporting your payments to the major consumer credit-reporting agencies. Typically, buy-here, pay-here lenders do not report your payments to the major credit bureaus.
Borrowing more than the car is worth
Guaranteed auto lenders typically allow you to borrow more than the car is worth, which can result in a high starting balance when combined with other debt like credit cards. To avoid this, be sure to include the cost of financing when you calculate your monthly budget.
Getting the right loan terms
The lender might offer you a certain interest rate and financing terms at first, but then change those terms after you sign the paperwork. The lender also may be able to raise your loan rates during the term of your contract and impose late fees if payments are made past a certain date or on a specific day of the month. To avoid this, don’t leave the dealership without first reading and signing the contract so you're familiar with the loan terms.
Requirements for bad credit auto financing
Each lender has its own requirements for car loans, so it's important to review their criteria before you apply. However, there are some general requirements you can expect to find if you're shopping around for bad credit auto financing.
- At least 18 years old
- Proof of steady employment or regular income such as disability benefits
- Earn at least $1,500 each month
Depending on where you apply, you may also need to provide a list of personal references who can vouch for your trustworthiness or financial responsibility. Some lenders also require a certain amount of money down if you have bad credit.
Alternatives to guaranteed auto financing
A car loan isn't the only way to buy a new or used vehicle. If you want to forgo a loan or you don't think you can qualify, here are some alternatives to explore.
Buying a car with cash
In some cases, it's better to pay cash for a new or used vehicle. This lets you bypass the need for financing, and you have the peace of mind of knowing you own the car outright.
While you might not have enough cash in your budget to buy a car on your own, you can try borrowing what you need from a friend or relative. If you use this method, it's a good idea to write up a simple agreement that spells out how you will repay the money, along with any interest you agree to pay.
Recent IRS tax rules also allow taxpayers to gift up to $15,000 per year to someone without paying taxes on the money. This can make it easy for a parent or other person to help you buy a car tax-free.
Opt for a cash-out refinance auto loan
If you already have a car, you might be able to use a cash-out refinance auto loan to buy your new one. With a cash-out refinance loan, you borrow enough to cover your current loan and also tap your car's equity to receive extra funds, which you can put toward a new car.
The amount you can qualify for with a cash-out refinance loan depends on the equity you have in your car. For example, assume you owe $10,000 on your car and qualify for an additional $3,000 based on your equity.
With a cash-out refinance auto loan, you roll over $10,000 into a new loan and receive $3,000 in cash for a total loan amount of $13,000. One possible drawback is that financing a new car this way can cause you to become upside down on your loan, meaning you owe more than your new vehicle is worth.
Get a home equity loan
If you've built up equity in your home, you could use a home equity loan to finance a new car purchase. With a home equity loan, you borrow against the value of your ownership interest in your home.
A similar form of borrowing is the home equity line of credit (HELOC), which gives you access to a line of credit you can tap. Some people prefer a HELOC over a home equity loan because you only pay interest when you use money from your line of credit rather than receiving a lump sum and then making payments.
Use a credit card
If you can find a card with a good interest rate, a credit card might be another way to finance a new car purchase. However, it's important to be certain you can remain dedicated to paying off the balance as quickly as possible, as a high balance can mean racking up interest from month to month.
Borrow from your 401(k)
If you have a 401(k) through work, you might have a source of cash just waiting to be tapped. Not all plans allow you to borrow money for any reason, however, so be sure to check with the plan administrator before trying to borrow from your retirement accounts.
Also keep in mind that you will stop earning money on the funds you withdraw. You will also be required to pay yourself back — usually within a specific period of time.
If you fail to repay the money, you could also get hit with tax penalties. In addition, it's probably more financially sound to borrow from your 401(k) when you're in your 20s or 30s versus nearing retirement age.
Qualifying for a car loan may seem like an impossible task when you have bad credit, but a problematic credit score isn't always as big of a hurdle as you might expect. You have a good chance of getting car financing as long as you have a steady income and you're willing to pay a higher interest rate.
About the Author
Mike is a recognized credit expert and founder of Credit Takeoff. His credit advice has been featured in CNBC, Investopedia, CreditCards.com, Bankrate, Huffpost, The Simple Dollar, Reader's Digest, LendingTree, and Quickbooks. Read more.