Want to take out a car loan despite having poor credit? Second chance car loans may give you a shot! Here’s everything you need to know.
Financial emergencies can happen to the best of us. Unforeseen circumstances can cause you to have bankruptcies, default on loan payments, or delay paying your credit card bills. All of these situations can reduce our credit scores greatly. However, that shouldn’t stop you from getting the car you want!
Second-chance car loans do exactly that – they give you another chance to redeem yourself by taking on an auto loan and being consistent with your financial history. In this post, we’ve broken down exactly what second-chance car loans are and whether they’re a good option!
What Is a Second-Chance Car Loan?
Second-chance car loans – also called sub-prime car loans – are intended for buyers with poor credit histories and bad credit scores. Because of the riskier credit profile of the customer, such loans often have higher interest rates and other conditions to ensure payments are on track. For example, lenders can include tracking software in the car or even have a locking mechanism to disable the car if you default on your payments.
However, if used correctly, these loans can help you build up a consistent payment history and improve your credit profile so that you get back on track with your finances!
What Credit Score Qualifies for a Second-Chance Car Loan?
The short answer is that it varies according to the lender you approach. According to the Consumer Financial Protection Bureau (CFPB), credit profiles can be broken up into the following categories:
- Super-prime (720-850)
- Prime (660-719)
- Near-prime (620-659)
- Sub-prime (580-619)
- Deep-prime (below 580)
Typically, the sub-prime (580-619) and deep-prime (below 580) categories are automatically considered as ‘poor credit.’ However, some dealers will also consider near-prime credit scores as poor and may offer second-chance auto loans. Since these loans typically have high interest rates, it’s always good to shop around with different lenders to find which rates are affordable for you.
How Can I Get a Second-Chance Auto Loan?
Second-chance car loans are offered by a variety of different financial institutions including:
- Banks
- Credit Unions
- Dealerships
- Online Loan Aggregators
Start with a bank to see whether your credit score is good enough to take on a sub-prime loan. If they tell you that your score is too poor, it’s best to try a credit repair mechanism before taking on a new car loan with high interest.
The easiest way to find good second-chance car loans is to shop around using an online platform like Way.com. You can compare rates, pre-qualify for financing, and choose the offer that best fits your budget. Some advantages of using an online lending platform include:
- You can find out if you pre-qualify for second chance car loans with a soft credit inquiry
- You can find lenders that specialize in subprime lending, who can offer the best offers for you
- Find dealers who treat customers with poor credit fairly
How Do I Apply for a Second Chance Car Loan?
You can apply for a subprime car loan at a bank, dealership, or an online platform. But first, have the following documents handy to reduce your hassle:
- Income proof
- Insurance proof
- Proof of identity and residence
- Vehicle information like VIN, mileage, and more
Benefits of a Second-Chance Car Loan
Often, sub-prime car loans are the only way for borrowers with poor credit to build their scores. Bankruptcies, repossessions, or financial stress might’ve dented your score to a point where you may not get any other loans approved. However, you must ensure that you are in a sound financial position and will not default on any future payments for these loans to give you maximum benefit.
Drawbacks of a Second-Chance Car Loan
Don’t rush into taking on a subprime car loan without understanding the risks involved. Look out for the following conditions:
- High interest rates: Second-chance car loans have higher rates than normal because of the risky credit profiles of the borrowers. Always ensure you are able to afford the monthly payments before signing the loan.
- Larger down payments: If you want to lower your APR, you might have to pay a larger amount as an initial down payment.
- Extra fees: Keep an eye out for predatory lending practices like extra fees and markups.
Should I Get a Second Chance Car Loan?
Whether you want to take on a subprime loan or not should be based on factors like the lifespan of the car, your future projected income, the affordability of the loan, and other credit-building options available to you.
However, there are much safer ways to improve your credit than locking yourself into a high interest car loan. Here are some steps to take before you consider applying for subprime lending.
- Keep track of your credit score using the free annual credit report from a bureau
- Never max out your credit limit
- Stay consistent with your credit card and other utility bills
- Sign up for credit repair if you think your score is too low to qualify for a second chance car loan
FAQs on Second Auto Loan
Can You Get a Car Loan with a 450 Credit Score?
Yes, you can get subprime car loans even with a credit score of 450. However, watch out for extra-high interest rates – as much as 20% in some cases. Such predatory lending might mean you’ll end up paying much more than usual over the course of the loan.
What Credit Score Is Too Low for a Car Loan?
Any score below 450 is typically considered too low for a car loan. However, you may still be able to qualify if you make a large enough down payment or have a co-signer.
What Credit Score is Needed for a Second Car Loan?
Your credit score is a big part of whether or not you can get an auto loan. Some lenders, like FICO Auto Score, use special credit scores. In general, to get a loan with a good interest rate, you’ll need at least prime credit, which means a credit score of 661 or higher.
Can I Get a Used Car Loan With a 500 Credit Score?
People with bad or low credit scores can still apply for car loans, if not from banks then at least from companies that put together loans from different lenders. But this could be a bad idea because loan consolidators are likely to charge a higher interest rate. So, the best thing to do before applying for a car loan would be to improve your credit score.
Is It Hard to Get a 2nd Auto Loan?
You can have two car loans at the same time, but getting a second loan may be harder. Lenders will only give you a loan if your income and other monthly bills can handle the extra cost. Even if you are approved, you need good to great credit to get a low APR, even if you are approved.
What’s the Lowest Credit Score You Can Get a Car Loan With?
To qualify for the majority of traditional auto loans, you’ll need a credit score of at least 661, since most lenders seek borrowers with credit scores in the prime area or above.
Can I Get Approved for a Second Auto Loan?
Yes, you can be approved for a second car loan even if you still have one existing. However, you need to have sufficient income, a good credit score, and consistent payment history to convince the lender that you can pay both loans at the same time. An alternative is to refinance your existing auto loan so that you can get a lower rate and pay off the existing loan quickly.
Also read: How can you get out of a bad car loan?
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