This Hub is about bad credit car loans. You’re sitting in the auto dealership. Waiting to see the finance manager about the absolutely beautiful car you have decided to buy. The manager finally comes out and says, ‘I have some bad news for you.’ The bank has turned down your loan due to problems on your credit report. Your heart sinks down to your feet. Welcome, to sub-prime lending.

Sub-prime lending is for people who have blemishes or problems on their credit report. . This is not the end of the world. Every lender has different criteria for what is sub-prime. Sub-prime lending does not mean you cannot get a loan. It means you will probably pay a higher interest rate, and/or be required to put up a larger down payment than a person with excellent credit. Lenders tie interest rate to perceived risk. The more risk involved in the transaction the higher the interest rate will be. The larger down payment lowers the amount of risk involved. An example is; you’re buying a $10k automobile and you put up a $3k down payment, then the lender sees it as they have only a $7k loan at risk on a $10k automobile.  Conversely If the lender were to lend $10k on a $10k automobile, this would be a much riskier transaction for the lender.

Get a copy of your credit report and check for errors. The credit bureaus make errors just like the rest of us. An erroneous entry may be lowering your score when it should not even be there. A more subtle error is when a credit card account states it was closed by the issuer when in reality you the borrower actually closed the account. When the issuer closes an account this means the borrower has done something wrong. This carries a completely different meaning to the credit reporting agencies.

Credit scores are a moving target. An extra payment or paying off one of your credit cards may be enough to change your score. Credit card balances are best when kept under 50% of the credit limit.  It’s also possible that you’ve paid off a prior loan and it’s not been posted on your credit report.

Shop Around for a better loan. The dealer makes money on financing you. You might get a better loan from your own Bank or Credit Union. Credit Unions may be more lenient and understanding about any financial difficulties you have had in the past. Lastly look online for a national lender that specializes in sub-prime lend and may give you a better rate.

Check with family and friends. You may find a family member or friend willing to co-sign your loan or lend you enough money for a substantial down payment.

The final options are to not buy the car and work on improving you credit score before you purchase. Or pay the higher interest rate loan payments on time for the next 2 years to improve your credit score. Then refinance the loan at a lower rate and smaller payment.

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