When you have good credit, you can walk into just about any bank or credit union, fill out an application for an auto loan, and be told exactly how large of a loan you will be allowed.

When you do not have good credit, you can’t. Why is that?

Higher risk (i.e. Bad Credit) loans have a completely different underwriting process than prime auto loans. These are the factors that are considered when a lender decides whether or not to give you a bad credit auto loan:

1. Monthly Budget

The lender considers your provable income, factors in your current debt, and looks at the size of previous car payments that you have paid successfully. Next the underwriter, or the underwriter’s computer program, will come up with an acceptable monthly payment for you.

2. Vehicle

Higher risk lenders put certain requirements on the vehicles they are willing to lend money on. For example: A lender may say that the vehicle must be under 60,000 miles and a 2006 or newer.  Additionally, the exact Mileage, Year, Make, and Model will affect the term and the interest rate of the loan. All of those things affect how large the loan can be.

3. Down Payment

Lenders look at down payment as the customer’s commitment to the loan. If a car buyer puts $10,000 down on a $40,000 car, the loan is much more attractive to the lender than a person who puts $0 down on a $20,000 car. The payment may be bigger, but the risk is less.

Hopefully, the information provided above helps you understand the bad credit auto loan approval process.  If you have any other questions, you can always call us or check out our Frequently Asked Questions page.