Auto loan providers consider various pieces of information to ultimately extend or decline a loan. Even with a low credit score, you can still obtain a loan approval. Before you apply for a loan, determine if your credit, employment, address and income information is acceptable, based on the information that lenders review.
Credit History
Lenders do not determine loan approvals based on credit scores alone. Instead, lenders review all of your past accounts and payment history. Your accounts should be current when you apply for an auto loan, meaning you shouldn't be behind on any car payments, mortgage, credit cards or utility accounts. Your credit should offer proof of established credit, even if you experienced financial hardship for a period. A lender may also ask you to prove that certain debts have been paid before approving your loan.
Personal Information
A lender may approve your loan if you have sufficient income and employment history, even with a low credit score. Expect to provide at least two years of employment and address history. The longer you've been at your job and the more money you make, the more likely you are to obtain a loan approval. However, if you are constantly changing jobs, have a low income -- $20,000 per year or lower -- and inconsistent address history, you may be declined for a loan, even with good credit. You should also have enough income to cover your monthly debt. Less debt is favorable; a good credit borrower's loan application can be declined if his debt is close to or exceeds his income.
Vehicle Value
You can still obtain a loan with a lower credit score, but it may not be for the amount you wanted to borrow. Poor credit borrowers may obtain an approval for as low as 60 percent of the car's bank-determined market value. The lender figures your vehicle's value based on its year, make, model, level, options and mileage. Based on your credit, the lender offers approves a percentage of that value. You may have to provide a large down payment to establish your loan if you have poor credit, while better-credit borrowers may obtain a loan for up to 120 percent of the vehicle's value.
Rate Differences
If applying for a new car loan through a vehicle manufacturer's bank to obtain low rate financing or a lease, good to excellent credit history is required. Manufacturer banks offer either an approval or decline the loan application; no in-between rates are offered. Lenders like banks or credit unions use a tier scale. Excellent credit warrants the best rates, but lower scores and blemished history can increase rates up to around 15 percent. Subprime lenders, who offer loans to low credit or risky borrowers, can charge up to a 29 percent interest rate in some states.
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