Banks That Offer Loans To Bad Credit Individuals

When you are on the lookout for an auto loan, it is a good idea to start the process by gaining an understanding of exactly what it is that banks look for in a borrower.

Of course, banks are in the lending business in order to make money; they need to turn a profit. When it comes to lending money, the way that banks turn a profit is through a combination of:

a. lending money at as high an interest rate as they can
b. lending with as little risk (of borrower loan default) as possible

It is this high-interest/low-risk combination that of course banks would jump at any day of the week. However, due to the credit scoring system and the fact that every bank is in competition with other banks for customers, it is really rather a situation of trade-offs for a bank. The risk/reward combination for a bank is on a continuum: a low-risk borrower (i.e., good credit score) gets offered loans with lower interest rates, and a high-risk borrower (i.e., bad credit score) gets offered loans with higher interest rates.

Of course, if your credit (FICO) score is particularly low, in many cases you just won't get offered a loan at all. From most banks, that is. There are banks out there that offer auto loans to bad credit individuals. This lens explores how to find those banks and how to increase your chances of getting loan approval.

While 95% of banks and other car financing lenders out there focus almost exclusively on the borrower's credit score, some banks have made it their business to make loans to bad credit individuals. These banks know that a fairly significant portion of the population have bad credit scores. And, rather than shying away from doing business with these customers, instead these banks are putting their efforts into pursuing these bad credit customers.

How do they do it? Well, as you will recall from the earlier discussion (above), most auto finance lenders would just prefer to make their own lives as easy as possible. They just reduce a person's entire financial credit-worthiness to a single number: their credit score.

Meanwhile, however, these bad credit auto lending banks take a more subtle and sophisticated approach to lending. What they do is to actually "look under the hood" of a given borrower's credit history. They will analyze each item in the report - line by line - to find out what really makes that person tick. And, often, the story that they find there is much more positive than the single (low) credit score would imply.

Why do this go out of their way to do this? Simple - they want to find the auto lending opportunities that most of their competition simply overlook.

So, what does it take to "get in good" with one of these bad credit lending banks? Well, it starts with being prepared before you start the auto loan application process. It involves understanding how they think. And, of course, it requires that you shop around to qualify for the best-possible interest rate.

Here are 5 tips for securing a bad credit auto loan:

1. Become intimate with your credit report: Start by requesting your full credit report from each of the three major reporting agencies (TransUnion, Equifax, and Experian). But, do not just limit yourself to looking at your score (which will vary a bit from one to the next). Instead, do not be afraid to do a "deep dive." Really get to know the report. In particular, look for and note any items that put you in a particularly favorable OR unfavorable light. And, prepare yourself to be able to speak to both types of information about you, if asked by the loan officer.

2. Prepare your own employment history and income-related documentation: Depending upon your lender, you may be asked to show proof of current income (such as a recent paystub) and possibly an accounting of your employment history.

3. Create a list of multiple bad-credit auto lenders: Find online resources that aggregate these lenders into one place, or conduct online searches for "bad credit auto lenders."

4. Apply to at least 3-5 of these lenders: Make sure to ask for loans of the same duration (e.g., 5 years, etc.) so that you can compare the quotes easily.

5. Do not just sign the first offer that a lender gives you: Always ask if they can go back to their loan manager and do better. It doesn't hurt to ask. And, do not accept any offers until you have applied to every single lender on your list!

Take these 5 tips into account as you secure a bad credit auto loan for yourself or a family member.