Different Auto Lenders and How They Work

Get Car Financing
Even with poor credit.


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 - July 14, 2020

Once you know your credit score, your income, and what you’re looking for in a vehicle, you can then work toward choosing the right lender for you. Not all lenders can help all borrowers, so we’re here to guide you through the main types: direct, indirect, and in-house financing.

Direct Auto Lenders

Direct lenders are those you apply with directly, such as a credit union, bank, or online lender. You can apply on their website, or sometimes even walk right into the location and talk directly to the auto lender when you're applying with a direct lender.

If you’re approved for vehicle financing, the direct lender hands you a check for your pre-approved amount, and then you can shop with either a dealership or a private seller. Since you already have a check in hand, you can shop like a cash buyer. You choose a car, give the check to the seller, and take delivery.

Direct lenders typically prefer borrowers with a good credit score. If you’ve been a member of your financial institution for a while and your accounts are well kept, you may be able to secure financing at your bank or credit union. Even with an imperfect credit history, an auto loan from a direct lender may be possible depending on what caused your low credit score.

If you have bad credit though, you may have better luck getting approved for a car loan with an indirect lender through a dealer’s special finance department.

Indirect and Subprime Car Lenders

With an indirect lender, as the name implies, you don’t see them face-to-face. Instead, you work with a finance or special finance manager at a dealership. These managers work with the lenders on your behalf.

With a dealer’s finance department, once you fill out an application, it's often sent to multiple auto lenders, depending on who the dealership is signed up with. Once an indirect lender one is found that can work with your credit and situation, they send what’s called a payment call, which lets the dealer know the maximum monthly car payment that you qualify for.

After you receive that, you can then shop for a vehicle that fits within your monthly payment. You and the dealership work to finalize all the paperwork, and then you can take delivery of the car.

There are also indirect lenders called subprime lenders, who specialize in working with borrowers that have bad credit, no credit, or those with big hits on their credit reports: bankruptcy, repossession, etc.

All subprime lenders are indirect, meaning you never talk to them in person, since the special finance manager at the dealer acts on their behalf. This means you can’t use a subprime lender to secure financing for a private seller, but you could possibly purchase a new or certified pre-owned vehicle through the dealership if you qualify.

Since many traditional, direct lenders won’t work with borrowers with tarnished credit scores, subprime lenders could be a bad credit borrowers second chance in auto financing. However, there are some situations in which a subprime lender may not be able to help, and that’s where in-house financing comes in.

In-House Financing

In-house financing is a different type of financing, in that you work with the dealer who’s also your lender. This means that all car shopping and all financing is done under one roof, often making the process a quick one.

Getting an in-house financing auto loan means finding a buy here pay here (BHPH) used car lot. These dealerships are known for their lack of a credit check, which can be great news for a borrower with a low credit score.

When you apply with a BHPH dealer, they often don’t check your credit reports, since they’re the lender. They usually check your income and require a down payment, though – sometimes around 20% of the vehicle’s selling price.

If you decide to work with an in-house financing dealership, just know that your low credit score may not improve from the loan; these dealers sometimes don’t report it to the credit reporting agencies. A loan that isn’t reported doesn’t help your credit score. However, BHPH dealerships do typically report missed or late payments on the loan, which hurt your credit score.

Since working with a BHPH dealer often means coming up with a large down payment and paying a little more in interest (the trade-off for no credit check), they're often seen as a last resort.

Ready to Look for a Dealership for Your Credit?

Now that you know the main types of auto lenders, you can start looking for the right one for you. Let us help!

Don’t drive all over town looking for a lender when we can do the heavy lifting for you at CarsDirect. We match borrowers of all credit types to dealerships in their area for free using our car loan request form. It’s quick, secure, and there’s never any obligation to buy a thing!


$1 Credit Report

Get your credit score now!
Get a copy of your most recent credit report too.

Get Your Report & Score

Auto Refinance

Refinance your car or truck now. Get a better interest rate and lower payment.

Refinance Your Car

Auto Services

Compare service professionals near you. Get multiple price estimates upfront. Schedule your service.Save upwards of 25% with Openbay+

Search services or describe problem

Need a Car Loan?

It only takes a minute.

, 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. 

Loan approval is not guaranteed and is subject to credit application and approval of the lender. Individual loan terms may vary. Use of this website constitutes acceptance of CarsDirect.com's Terms of Use, Disclaimer, Privacy Policy, and Cookie Policy.

Privacy Terms of Use Your Privacy Choices Disclaimer Cookie Policy Manage Preferences
COPYRIGHT 1999-2024 MH Sub I, LLC dba CarsDirect.com