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Car Loan With Bad Credit: Application Process Explained

Most people with bad credit are rejected by lenders just because they do not know the application process. Very often, an auto loan rejection is not a result of bad credit, but unfamiliarity with the way lending industry works.

Most individuals with bad credit fear applying for a car loan due to several reasons. First, and most important, they fear rejection due to their past credit issues. Second, they are unsure of what information they need to provide to be considered for a bad credit auto loan. Last, most do not know where to look for auto loans, besides their local car dealer or bank. The application and approval process is much simpler than you may think, and getting an auto loan even with bad credit is possible, provided you understand how things work.

Identity Verification

First, when considering you as a candidate for any loan, a bank or another financial institution needs to verify your identity. While initial request does not require you to submit any supporting documentation, and only requires you to provide your name, address, date of birth, and social security number; you will need few things later on in the process. Lenders will ask you for a valid ID, proof of residence in form of a phone, electricity, or any other utility bill in your name, and, possibly, another document with your name on it, such as a bank check or a credit card. As the number of identity theft cases is on the rise, banks need to make sure that you are in fact the individual who is applying for a loan.

Credit Check

Once your identity is established, a lender will perform a credit check. Unlike mortgages, auto loan companies usually use one credit bureau of their choice. Using your name, date of birth, and social security number they will check all your past and present credit obligations, as well as get your credit score. In many cases, credit score itself is sufficient to make an approval decision. If your credit score is below 640, a lender may reject you right on the spot, like traditional banks would do, or perform a detailed examination of your credit report and repayment ability.

Repayment Ability

No matter how good or bad your credit score is lenders always ensure you have the means to repay the loan. Therefore, they make some financial calculations based on your actual income and expenses when underwriting your loan. Ability to repay is probably more important than your credit standing, as it shows lenders that you have enough disposable income to attribute to monthly loan payments. Depending on the lender, your income eligibility may be performed based on statistical formulas, or according to your actual expenses.

Auto Loan Application Types

Today, you may apply two ways for a car loan. The traditional way is to walk into a local car dealership or a bank, and submit a credit application. This is what most people do, and what people with bad credit should not do. Traditional lenders endorse stricter criteria, and, most likely, you will get nothing, but embarrassment of being rejected in front of a bank or a dealer rep. Another way is to apply electronically, i.e. submit an application online. Online applications are faster and easier, and are submitted to multiple lenders, increasing your chances of success. Online auto lenders have lower overhead compared to banks and are able to move a little on their requirements to get you approved. If your credit is badComputer Technology Articles, applying online is the best way to go on your quest for auto financing.

Article Tags: Credit Application, Auto Loan, Credit Score

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Melissa Kellett has a Master in Finance and has been a financial consultant for years. She specializes in Poor Credit Personal Loans people and also in helping people to get approved for Personal Loans, unsecured loans, Bad Credit Loans Guaranteed Approval, no credit check loans, student loans among many other financial products. Visit her site at

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