Poor Credit New Car Loans Decrease

Why Is It Harder To Get A Poor Credit New Car Loan?

Over the last two years the percentage of poor credit new car loans originated for car buys with credit scores between 501 to 600 has continued to drop. There are several reasons for this but the primary drivers of the decrease is inflation; the increase in new car prices and dealer markup over MSRP.

Poor Credit New Car Loan Penetration
Source: Experian State of the Auto Finance Market

Other than the interest rate charged lenders guidelines have not changed much over the past two years. New car lenders prefer monthly payment to income ratios below 12.5% and overall loan to value ratios below 110%.  New car lenders typically retrieve the value of the vehicle from the invoice price.

Poor Credit New Car Rates
Source: Experian State of the Auto Finance Market

For example, the average poor credit new car loan amount for the 2nd Quarter of 2022 was $38,802.  When you apply the maximum loan to value ratio for Poor Credit of 105% the average vehicle to support this loan amount would have an invoice price of over $36,954.   In the following hypothetical car deal we’ll analyze the Jeep Cherokee Latitude Lux Front Wheel which has a starting invoice price of $35,914 and a starting MSRP of $36,490.

Average Poor Credit New Car Loan Amount
Source: Experian State of the Auto Finance Market

Sample Poor Credit New Car Deal

If the dealership marked-up the 2022 Jeep Cherokee Latitude Lux FWD $1,000 over MSRP the out the door cash sale price would be $40,808.65.  The hypothetical lender, on the other hand, would only finance 105% of the invoice amount which is $37,709.  In this scenario the car buyer would have to make up the difference with a cash down payment of at least $3,099. It should also be noted that if a trade-in is also part of the transaction the new car buyer with poor credit would have to come up with additional cash down to cover any amounts of negative trade equity.

Vehicle Sales Price$37,490.00
National Avg. Sales Tax (7.25%)2,740.65
Avg. National DMV Fee266.00
Avg. National Doc Fee312.00
Cash Sale Price$40,808.65

When buying a car with poor credit, new credit with limited available cash for a down payment new cars with rebates have a distinct advantage of used cars. Rebates on new cars can be used to reduce the out of pocket cash to close the car deal.

Poor Credit New Car Loan Income Requirements

Another issue poor credit new car buyers are facing is the average income needed to buy a new car. As mentioned above, lenders prefer car loans where the monthly payment is below 12.5% of the borrowers monthly income.

Average New Car Payment with Poor Credit
Source: Experian State of the Auto Finance Market

During the 2nd quarter of 2022 the average monthly payment for a poor credit new car loan was $692.  To support a payment of $692 with a maximum payment to income ratio of 12.5% the borrower would need a monthly income over $5,500 per month or $66,000 per year.

Recommended Steps

If you are considering buying a new car with a credit score between 501 and 600 we recommend that you use our Car Loan Estimator to determine the maximum loan amount you are able to afford based on your monthly income. Next, review our New Cars with Rebates list to find a vehicle that meets your needs, and is within your budget. As mentioned above the rebate amount will reduce out of pocket cash needed to finalize the purchase.

About Us

AutoByPayment.com offers accurate estimates of new car loan payments based on self-selected credit score, current rebates, down payment, and trade equity or negative equity, without customers having to provide their personal identifying information such as email and phone.

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