Bad Credit Auto Loans and Captive Lenders

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Even with poor credit.

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


, - August 28, 2019

Many consumers think they don't have any car buying options available if they have bad credit. That's just not the case. In fact, depending on the situation, you may even be eligible to get an auto loan through a captive lender. Let's take a look.

Captive Auto Lenders

Lenders that handle financing specifically for their brand or brands are called captive lenders. These are the finance subsidiaries of car manufacturers, and most manufacturers have a captive lender. Examples include GM Financial, Ford Credit, Kia Motors Finance, and Honda Financial Services, to name a few.

Captive auto lenders are indirect lenders. Like bad credit car lenders, you can't sit down with them face to face. Instead, you have to work through the finance manager at a dealership.

These lenders can be one option for people with poor credit who are looking to get a new or used vehicle. Keep in mind that approval isn't guaranteed, but there are a lot of pluses to working with a captive lender if you qualify.

Advantages of Working with a Captive Lender

There are many advantages that can come from working with a captive auto lender. They're the only lenders that can offer such deals as below-market interest rates on loans and leases – such as 0% APR financing offers.

Other deals, like cash on the hood offers such as $1,500 cash back on a latest model, for example – are typically, but not always, offered regardless of whether or not you're financing with a captive lender.

Captive lenders also have more flexibility than banks or finance companies because they can quickly adjust guidelines in response to market conditions or specific car sales. This flexibility gives captive lenders the ability to approve customers that, in some situations, might otherwise have been turned down, such as bad credit borrowers.

Keep in mind, however, that not everyone is eligible for every deal, and there are a few disadvantages to working with captive lenders, too.

The Downside of Captive Lending

When you're considering bad credit auto financing through a captive lender, make sure you weigh the pros and cons before you make a final decision. Some of the stipulations of captive car loans may not be workable when you have poor credit.

For example:

  • Loans have shorter terms – Like other lenders, the lowest interest rate deals offered by captive lenders are generally only available on shorter loan terms like 36 and 48 months. A shorter loan term means a higher monthly payment, which may not be affordable if you have bad credit.
  • Lower interest offers may not be the best deal – Sometimes, manufacturers offer the choice of a better interest rate from a captive lender or a cash rebate using either the captive or another lender. Make sure you calculate both offers. It may turn out that the cash back offer is a better deal that makes more sense as a bad credit borrower.
  • More likely to push dealer add-ons – It's likely that financing through a franchised dealership's finance department means a number of add-ons that you have to watch for. Some of these add-ons make sense, like GAP insurance in many cases, but others, like VIN etching, are unnecessary. Dealer add-ons increase the cost of a loan, so make sure you go over your entire contract before you sign to make sure there's nothing there that shouldn't be.
  • Borrowers with great credit get the best interest rates - Even though bad credit borrowers may get approved by a captive lender, chances are they won’t qualify for the best interest rates these lenders offer.

Car Loans with Less Stress

You're not out of options, but you usually have a smaller group of lenders to choose from when you need a bad credit auto loan. Don't let that stress you out, though. Instead, start your bad credit car financing journey right here at CarsDirect.

You can research your vehicle options with our new and used cars sections, plan a budget with the help of our handy car loan calculator, and, when you're ready, fill out our free, no-obligation auto loan request form.

After you do, we'll get right to work matching you with a local dealership that has the lending resources you're looking for. What are you waiting for? Click here to get started right now!

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


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