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Bad Credit Auto Loans in 2020

Need access to financing but your credit profile is less than ideal? Read our guide to find out how auto loans work.
Kane Pepi
Author: Kane Pepi

Last Updated: May 11, 2020
bad credit auto loans
bad credit auto loans

Are you on the lookout for financing, but your credit profile is less than ideal? If so, you might be forced to use a specialist bad credit lender. While such lenders allow you to obtain loans with a poor or bad credit rating, the interest rate is likely to be sky-high.

One such alternative to this is to use a bad credit auto loan lender. In doing so, you stand the chance of reducing your APR rate by some distance. You will, of course, need to be named on the vehicle logbook, and the amount that you can borrow will be dependent on the market value of your car or motorbike.

In this article, we explain the ins and outs of how bad credit auto loans work, who is eligible, how much you can borrow, and more.

On this Page:

    Apply for a Bad Credit Auto Loan with our Recommended Providers:

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    Upstart
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    Available Term Length
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    One Main Financial
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    $1500 - $20,000
    Available Term Length
    24 months
    Representative APR
    16% to 35.99%
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    Lending Club
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    $5000 - $40,000
    Available Term Length
    3 years
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    6% and 35.89%
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    Did You Know? Although bad credit auto loans are a great alternative to payday loans, you will need to put your vehicle up as collateral. As such, if you fall behind on your loan repayments, you could have the vehicle repossessed.

    What is a Bad Credit Auto Loan?

    Bad credit auto loans allow you to avoid the super-high APRs that come with payday loans

    In a nutshell, an auto title loan is a financing product that allows you to borrow money against your car or motorbike. In a similar nature to a homeowner loan, the amount that you can borrow is based on the value of the asset that you wish to put up as security. This is usually expressed as an LTV (Loan-to-Value) percentage against the current market value of the vehicle.

    For example, let’s say that your car is worth $10,000 and the bad credit auto loan provider is willing to offer you an LTV of up to 60%. This means that you would be able to borrow a maximum of $6,000 from the lender (60% of $10,000).

    Auto loans are often more a favorable financing option for those with bad credit, as they usually come lower interest rates than payday loans. This is because payday loans are unsecured, meaning that you are not required to put any assets up as collateral.

    This is in stark contrast to bad credit auto loan providers, as they are willing to offer cheaper APR rates because they have the safety net of your car or motorbike. If you were to default on the loan, the lender would have the legal remit to seize the vehicle and sell it at auction. As such, you should only take out a bad credit auto loan if you are 100% sure that you can meet your monthly repayments.

    In terms of the fundamentals, your auto title loan repayments will be fixed. You’ll likely pay the same amount on the same date of each month until the auto loan is repaid. This allows you to spread your repayments over a number of months or years. It also allows you to budget in advance, as you know how much you need to set to one side to cover your repayments. In this sense, auto title loans are very similar to personal loans, but they are secured by your vehicle.

    You need to be named on the logbook of the car or vehicle to qualify for a bad credit auto loan. The lender will likely ask you to provide supporting documentation for this, so make sure you have your logbook to hand.

    Pros and Cons of Bad Credit Auto Loans

    Pros:

    • A great financing option if your credit profile is less than ideal
    • Borrow an amount proportionate to the value of your car or motorbike
    • The lender is not required to keep your vehicle
    • Obtain financing in 1-2 days
    • Much cheaper than unsecured payday loans
    • Get an instant quote by entering your vehicle registration number
    • Complete the entire application process online or via your mobile device

    Cons:

    • You can have your vehicle repossessed if you default on the loan
    • The car valuation might be less than you had hoped for

    How do Bad Credit Auto Loans Work?

    Regardless of which lender you go with, the end-to-end auto loan funding process remains constant. This includes the online application itself, providing supporting documentation, receiving the loan funds into your bank account, and then making your repayments each month.

    With that said, if you’ve never applied for a bad credit auto loan before, it might be worth reading the step-by-step guidelines that we have outlined below.

    Step 1: Find an Auto Loan Provider

    First and foremost, you will need to find an auto loan provider that accepts bad credit applicants. You will need to look at a range of additional metrics when choosing a lender, such as how much you can borrow and for how long. You should also look at the lender’s representative rate to gauge how much interest you are likely to be charged.

    Step 2: Check How Much Your Vehicle is Worth

    Bad credit auto loans are based on the current market value of your vehicle

    Once you have found a bad credit auto loan provider, you will then need to check how much you can borrow against the value of your car or motorbike. Most lenders allow you to do this before you start the application.

    All you need to do is enter the vehicle registration number alongside the make and model of the car, and the system should give you a valuation on the spot. The lender will also state what LTV they are able to offer against the valuation.

    Step 3: Complete an Online Application

    Now that you’ve chosen a lender and assessed how much you can borrow, you will now need to complete an online application form. This will require you to enter some personal and financial information.

    Your personal information will include:

    • First and Last Name
    • Date of Birth
    • Home Address
    • Social Security Number
    • Driver’s License Number
    • State ID Number
    • Contact Details

    Your financial information will include:

    • Name of Your Employer
    • How Long You Have Worked There
    • How Much you Earn Each Month
    • What Debts you Currently Have Outstanding

    Step 4: Review Pre-Approval Offer

     

    Once you have submitted the application form, the bad credit auto loan provider will then cross-reference your information with third-party sources. If the lender utilizes a hard inquiry, then a full credit check will be performed. Some lenders allow you to apply via a soft credit inquiry, meaning that the application will not be posted to your credit file.

    Either way, if the lender is happy to offer you a loan, you will be able to view your pre-approval terms. This will include the maximum amount that you can borrow and for how long. You will also be able to view your credit terms, such as the APR rate and origination fee. Regarding the latter, this is a fee charged by lenders to cover the costs of organizing the loan.

    Step 5: Vehicle Logbook and Bank Account Details

    If you are happy to proceed with the pre-approval rates offered by the lender, you will then need to upload some supporting documentation. At a minimum, this will include the logbook of your car or motorbike. If the lender was unable to verify your identity electronically, you might also be asked to upload a copy of your government or state-issued ID.

    Next, you will then need to enter your US checking account details. This is where the auto loan funds will be deposited into. Most lenders will also ask you to set up an electronic debit agreement. This allows them to debit your checking account each month to cover your repayments.

    Step 6: Sign a Digital Loan Agreement

    To complete the auto title loan process, you will need to sign a digital loan agreement. This removes the need to visit the lender in question. Make sure you read through the loan agreement thoroughly before signing it, especially with respect to interest and fees. Once you sign the agreement, the lender will initiate the funding process. In most cases, you should receive your loan funds within 1-2 working days, maybe sooner.

    How do I Repay my Bad Credit Auto Loan?

    So now that you know how the application process works, you now need to think about how you intend on meeting your monthly repayments. As note above, most bad credit lenders will ask you to set up an electronic debit agreement, meaning that the repayments will be taken from your checking account automatically. This is actually the best option available to you, as it means you will never forget to make a repayment. As such, you’ll avoid the risks of encountering a late payment fee.

    With that being said, you might have the option of making your repayments via an alternative payment method. Possible options include a:

    • Money Order
    • Check
    • Debit Card Payment
    • Cash via the Lender’s Store

    Am I Eligible for a Bad Credit Auto Loan?

    As the name suggests, bad credit auto loans are suited to those of you with bad credit. However, this isn’t to say that everyone will be eligible. For example, the lender will likely ask that you have a regular source of income, and that your debt-to-income ratio isn’t too high. The lender will also stipulate a minimum vehicle value to be eligible.

    Below we have listed some of the minimum requirements that you will likely need to meet to be approved for a bad credit auto loan.

    Named on the Logbook

    Firstly, your name needs to be stated on the logbook of the car or vehicle that you wish to take the loan out against. You will need to verify this by uploading the logbook as part of your application, so make sure that you have it to hand.

    Regular Source of Income

    You will need to prove that you have a regular source of income. Most auto loan providers prefer applicants that are in full-time employment, although this isn’t always mandatory. Instead, some lenders will consider your application if you’re employed part-time, or your income comes from benefits. The income threshold will be much lower in comparison to a traditional personal loan, not least because you are putting your car or motorbike up as collateral.

    Debt-to-Income Ratio

    Auto loan providers usually stipulate a maximum debt-to-income ratio requirement. For those unaware, this looks at the amount of debt that you currently have outstanding against your income. For example, if you earn $50,000 per year and you have $10,000 in outstanding debt obligations, your debt-to-income ratio would be 20%.

    Historical Relationship With Debt

    Although the lender won’t base its decision primarily on your credit score, it will need to assess what your historical relationship with debt is like. By extracting data from your credit file, they will be able to see whether or not you have previously been late with loan repayments or worse, defaulted. If you have fallen behind on your loan repayments on multiple occasions, you might be rejected outright.

    Age and State

    In most cases, you will need to be aged at least 18 years old to get an auto loan, although some states it can be 19. More importantly, auto title loans are not legal in all US states. Even if you live in a state that does permit auto loans, you might struggle to find a provider if there is a low limit on the amount of interest that lenders can charge. This is because the loan is unlikely to be viable for the lender as they cannot offset the risks of lending money to a bad credit profile with higher APR rates.

    How do I Choose a Bad Credit Auto Loan Lender?

    Like the sound of an auto loan and want to make an application for financing today? If so, you will need to find a lender that meets your personal needs. With hundreds of providers potentially active in your state, this is no easy feat. As such we would suggest making the following considerings before starting your auto loan application.

    1. What LTV Does the Lender Offer?

    You will need to evaluate the maximum LTV that the lender is willing to offer. This is to ensure that the lender is able to cover your financing needs.

    For example, if your car is worth $5,000 and you need to borrow $3,000, you will need to choose a lender that offers an LTV of no less than 60%.

    2. What Interest Rates Does the Lender Charge?

    There is no knowing how much you will pay on your auto loan until you actually apply. This is because the lender will base its financing charges on a number of metrics. This includes your current credit score, income, and debt-to-income ratio. With that said, most lenders will list a representative rate.

    This is the APR rate that the lender wishes to advertise on its website. Although there is no guarantee that you will get this rate, it should at the very least give you an idea of whether the lender is competitively priced.

    3. Does the Lender Need to Inspect Your Vehicle?

    Although most auto loan providers allow you to complete the entire application online, some will ask you to bring your vehicle in for inspection. If they do, you’ll need to do this before the lender releases the funds. If the lender in question is based locally to where you live, this shouldn’t be too much of an issue.

    However, if you are required to drive across the state to do this, it might be worth considering an alternative lender. Better still, stick with auto loan providers that operate 100% online.

    4. How Quickly Will Your Loan be Funded?

    In most cases, auto loan providers will fund your application within 1-2 days of the loan being approved. While this is likely to be sufficient for most financing requirements, there might come a time where you need the money even sooner.

    If so, you might need to choose a lender that offers same-day financing. Just remember, you might need to pay a premium for this, so be sure to assess how much the same-day loan is going to cost you.

    5. What is the Lender’s Policy on Late Payments?

    While it is hoped that you will always meet your monthly repayments on time, there is no predicting what the future holds. If you run into financial difficulties and subsequently fall behind on your auto loan, financial consequences are a certainty.

    Late payments will usually result in a monetary fine, which will also have interest applied to it. However, if the late payment turns into a default, you stand the very real chance of having your vehicle repossessed by the lender. As such, be sure to assess what the lender’s policy is on late payments before proceeding with your application.

    Conclusion

    In summary, bad credit auto loans are a great alternative to more expensive financing products like payday loans. This is because you will be putting your car or motorbike up as a security, so lenders are willing to offer you more favorable APR rates. As you now know, the fundamentals of an auto loan operate largely the same as an installment loan. For example, you’ll borrow a fixed amount at a fixed rate of interest, and your repayments will be taken on the same date of each month.

    This allows you to budget well, as you’ll know exactly how much you need to put to one side each month. With that being said, your auto loan is secured by your vehicle, meaning that the lender will have the legal remit to seize it if you default. The specific time-frame of defaulting will vary from lender-to-lender, although this is usually based on 90 days without payment. Ultimately, just make sure that you can afford to take an auto loan out before proceeding with an application.

    Glossary of Loan Terms

    A scale showing a high Credit Score
    Credit Score

    A credit score shows your creditworthiness. It's primarily based on how much money you owe to loan or credit card companies, if you have ever missed payments or if you have ever defaulted on a loan.

    A green tick stamp showing Guaranteed Approval
    Guaranteed Approval

    Guaranteed Approval is when, no matter how bad, your credit score its, your loan application will not get declined.

    A stack of coins and notes to show Cash Advance
    Cash Advance

    A Cash Advance is a short-term loan that has steep interest rates and fees.

    A secured padlock and document showing Collateral
    Collateral

    Collateral is when you put up an item against your loan such as your house or car. These can be reposessed if you miss payments.

    A scale with coins showing a high Credit Limit
    Credit Limit

    A Credit Limit is the highest amont of credit a lender will lend to the borrower.

    5 gold stars showing a high Credit Rating
    Credit Rating

    Your Credit Rating is how likely you are to fulfil your loan payments and how risky you are as a borrower.

    A silver cog with a gold star inside
    Default

    If you default on your loan it means you are unable to keep up with your payments and no longer pay back your loan.

    A coin with a green arrow showing Interest Rates
    Interest

    The Interest is a percentage based on the amount of your loan that you pay back to the lender for using their money.

    Piles of coins showing Fixed Interest Rate
    Fixed Interest Rate

    Fixed Interest Rate is when the interest rate of your loan will not change over the period you are paying off you loan.

    A calendar with an exclamation mark showing late payment
    Late Fee

    If you miss a payment the lender will charge you for being late, this is known as a late fee.

    A printed document with a crest showing a Principle
    Principle

    The Principle amount the borrower owes the lender, not including any interest or fees.

    A tag with a dollar symbol highlighting Prime Rate
    Prime Rate

    This is the Interest Rate used by banks for borrowers with good credit scores.

    A and holding a pile of green cash
    Secured Loan

    A Secured Loan is when you put collateral such as your house or car up against the amount you're borrowing.

    A hand holding cash with an unlocked padlock
    Unsecured Personal Loan

    An Unsecured Personal Loan is when you have a loan based soley on your creditworthliness without using collateral.

    Two hands holding an changing interest rate
    Variable Rate

    A Variable Rate is when the interest rate of you loan will change with inflation. Sometimes this will lower your interest rate, but other times it will increase.

    a credit card with gold coins
    AAA Credit

    Having an AAA Credit Rating is the highest rating you can have.

    A small bridge
    Bridge Loan

    A Bridge Loan is a short term loand that can last from 2 weeks up to 3 years dependant on lender.

    A calendar and tools to show an Installment Loan
    Installment Loan

    An Installment Loan is a loan that is paid back bi-weekly or monthly over the period in which the loan is borrowed for.

    A graduation cap and price tag
    Federal Student Loan

    If you obtain a Federal Student Loan to pay your way through College ten you loan is held with the U.S. Department of Education.

    A graph with a magnifying glass
    Financial Aid

    Financial Aid is funding available to post-secondary education students in America.

    A grey bank building with a green dollar symbol inside
    Guarantor

    A Guarantor co-signs on a loan stating the borrower is able to make the payments, but if they miss any or default the Guarantor will have to pay.

    Homes on scales balanced with money
    Home Equity Loans

    Home Equity Loans is where you borrow the equity from your property and pay it back with interest and fees over an agreed time period with the lender.

    London Inter Bank Offered Rate
    LIBOR

    LIBOR is the London Inter-Bank Offered Rate which is the benchmarker for

    Gold coins being fed into a larger doller weight
    Debt Consolidation

    Debt Consolidation is when you take out one loans to pay off all others. This leads to one monthyl payment, usually with a lower interest rate.

    FAQs

    How much can I borrow from a bad credit auto title loan?

    The amount that you can borrow will depend on the current value of the car or motorbike, and the LTV (Loan-to-Value) offered by the lender. The maximum loan size might also be determined by state lending limits.

    What happens if I default on my bad credit auto loan?

    In order to get an auto loan, you will need to sign a disclaimer that allows the lender to seize your vehicle in the event of a default. As such, a default will all-but-certainly result in the lender repossessing your car or motorbike.

    How quickly can I get a bad credit auto loan?

    ’If the lender offers a 100% online service, you should be able to apply for the auto loan in less than 10 minutes. If the lender is able to verify your information electronically, and you upload your logbook straight away, you'll likely receive the loan funds within 1-2 days.

    Do I need to supply supporting documents when applying for a bad credit auto loan?

    Yes, most lenders will ask you to upload a copy of the vehicle's logbook so that they can verify that you are the true owner of the car or motorbike. In some cases, you might be asked to upload some ID if the lender was unable to verify your identity electronically.

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    All trading carries risk. Views expressed are those of the writers only. Past performance is no guarantee of future results. The opinions expressed in this Site do not constitute investment advice and independent financial advice should be sought where appropriate. This website is free for you to use but we may receive commission from the companies we feature on this site.
    Kane Pepi

    Kane holds academic qualifications in the finance and financial investigation fields. With a passion for all-things finance, he currently writes for a number of online publications.