Direct or Indirect Car Loan With Bad Credit?

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Content Manager

Bethany Hickey is a Content Manager and Writer for Auto Credit Express, CarsDirect, and many other automotive blogs. She's a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. 

, Content Manager - March 15, 2021

When your credit isn’t great, you may have to look at a few different options outside of direct auto loans. Not every direct lender can work with bad credit, but there are indirect lenders willing to assist borrowers with credit challenges.

Direct Lenders and Bad Credit Roadblocks

The biggest difference between a direct auto lender and an indirect one is that you meet or talk directly with the direct lender. With an indirect lender, you typically meet with a finance or special finance manager instead.

Direct lenders also offer pre-approvals, where you apply for a loan amount and then shop for a vehicle within that price range. If you’re pre-approved for auto financing, you either get a check for your pre-approved amount and head to any dealer, or the lender sends the check directly to the dealership to pay for the vehicle. Pre-approvals can offer flexibility and freedom, but they can be hard to qualify for.

The other notable difference between direct and indirect lenders is that bad credit borrowers can often struggle to meet the credit score requirements of a direct lender. A lower credit score or lack of credit history can send up red flags for lenders, making it difficult to get approval.

The three types of direct auto lenders are:

Banks – Banks are one of the most common avenues for borrowers to get vehicle financing. However, they often require a higher credit score to qualify for a loan. With a credit score around or below 660, or with negative marks on your credit reports, you have a greater chance of being turned down for auto financing at a bank.

Credit unions – Credit unions may not have as stringent credit score requirements as banks, but they still generally prefer borrowers with good credit. Credit unions are known to be a little more lenient, but they may not be able to assist borrowers with bankruptcy or recent repossession on their credit reports. Borrowers with habitual bad credit (multiple missed or late payments and negative marks over time) are likely to struggle to get an auto loan approval from a bank or credit union.

Online lenders – Online lenders vary quite a bit, but these lending institutions tend to stick with blanket requirements and may not be willing to work with unique credit situations. They tend to be more of a “one size fits all” type of lender. In other words, there may not be a lot of wiggle room with credit score requirements.

Indirect Lenders That Assist Bad Credit Borrowers

There are many different indirect lenders – some work with bad credit, and others don’t. Applying for vehicle financing with an indirect lender usually involves going to the finance department of a dealership and working with the finance manager. They act as your middleman and contact the lender for you.

The finance manager sends your application along to their lending partner(s). If you qualify for financing, the lender sends back the loan specifications, what you qualify for, and your maximum monthly car payment. Working through a finance department at a dealership can give you the opportunity to apply with multiple lenders all at once if they have multiple lending partners (which many do).

The main two indirect lender types include:

Captive lenders – These are the lending arms of automakers, such as GM Financial. However, many of these lending institutions tend to prefer borrowers with good credit. Some captive lenders assist poor credit borrowers, though, such as Kia Financing.

Subprime lenders – Subprime lenders are signed up with special finance dealerships. The benefit of subprime auto financing is that these lenders are typically accustomed to unique or difficult credit circumstances, and your credit score isn’t the biggest factor in your eligibility to them.

If you have bad credit, you have a higher chance of getting a car loan approval with an indirect subprime lender.

They often assist borrowers with a recent bankruptcy, repossession, no credit, and borrowers with credit issues. Subprime lenders require documents such as check stubs, a valid driver’s license, personal references, proof of stable residency, and possibly more depending on your situation. You should also expect a down payment requirement – with bad credit there’s almost always a down payment stipulation.

Need Auto Loan Direction?

Choosing the right lender for your situation can be a hassle. With so many lending institutions out there, it can be hard to find one that can work with bad credit and your individual situation. Here at CarsDirect, we want to make your car shopping experience a little easier by connecting you to a dealer with bad credit lending options.

After you complete our free auto loan request form, we’ll look for a dealership in your local area that’s able to assist bad credit borrowers. Our form is secure, there’s no obligation, and our form only takes a minute or two to complete. Let us help you get back on the road by doing the search for you!


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, Content Manager

Bethany Hickey is a Content Manager and Writer for Auto Credit Express, CarsDirect, and many other automotive blogs. She's a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. 

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