Yes, it is possible to get a car loan with a credit score of 500, but you will be limited as to the lenders that you will be able to choose from. Many large national banks limit their car loans to people who have credit scores above 670. Even local banks and most credit unions are not willing to work with borrowers who have a credit score under 620–the generally-accepted divide between “subprime” and just plain “bad” credit. A credit score of 500 is, of course, one of the lowest scores on the spectrum–typically the result of bankruptcy, foreclosure, repossession, or a combination thereof–and as such, it is limiting to any consumer. Really, you have two options: “buy here pay here” financing, or a subprime auto lender.
Why to Avoid Buy Here Pay Here Dealers
“BHPH” lots, as they are often known, do not do any credit checks whatsoever. This may sound like an advantage, given your credit, but like anything, there’s no free lunch. The interest rates charged by these dealers are just short of criminal, and the cars are insanely overpriced. A large down payment is always required, typically in cash, and typically that payment meets or exceeds the dealer’s entire investment in the vehicle. But, worst of all, these dealers don’t report their payments to the credit bureaus, meaning all your diligence and hard-earned cash spent paying off your vehicle won’t do a lick to improve your credit score. Instead, your better off going to a dealer who arranges financing through subprime auto lenders, and we can help. When you submit your application, we put you in touch with a local finance specialist who can help you get the car you need at a rate that won’t leave you in the poor house.
What Subprime Auto Lenders Look For
Specialty lenders look for many of the same things as large traditional lenders do, but they have different acceptance criteria. Here are a few of the things they will be looking at and the criteria a specialty lender will look for in each area.
- Loan to value (LTV)…between 75 and 90 percent.
- Age of vehicle…less than 12 years old.
- Term of loan…30 to 36 months.
- Miles on vehicle…under 150,000
- Down payment…between 15 and 50 percent.
- Time on job…two years.
- Time at residence…again, two years.
- Monthly income before taxes…depends on lender, usually $1,250 minimum.
- Credit score/profile…480 or above. Can not have a repossession within the previous 12 months.
- Total debt to income including new payment…up to 45 percent.
What to Expect in Terms of APR, etc
With a credit score of 500, you obviously have had a few issues in the past. That makes you a loan risk. In order to mitigate that risk a lender will protect itself in several ways. The high down payment and short loan term mentioned above are a few ways specialty lenders protect themselves. Another is the high interest rate that bad credit auto loans carry. With a credit score of 500, a general rule of thumb is that you can expect to have an APR that is at least 13 points above the prime lending rate. The current prime rate has been hovering around 4 percent, so a bad credit auto loan will have an APR of at least 17 percent, but it could be as much as 25 percent depending on the state you live in and your credit report.