Financing a Car With a Credit Union

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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.


, - March 29, 2021

As a bad credit borrower, it can be difficult to qualify for a direct auto loan. However, even if your credit is less than perfect, you may have an easier time getting a bad credit car loan from your credit union than a bank.

Why Finance Through a Credit Union?

Unlike banks, credit unions are member-owned and don't cater to for-profit investors. This helps them pass on savings to their members. Though you must open an account just like you would at a bank, you may not be able to qualify for membership at all credit unions. However, most people can qualify for membership at a credit union.

Typically, you must be a member of a certain region, occupation, religious group, or fraternal organization to become a member. It's not typically hard to find a credit union you can qualify to be a member of, though, but you may have to search a little. Once you find the one that works for you, the process works just like many other direct auto loans, but with a few advantages.

Some of the advantages of getting your car loan through a credit union may include:

  • Better approval odds for members
  • Loans for lower amounts may be available
  • May offer lower interest rates compared to banks

Now that you know some of the advantages, let's look at the process of getting a direct auto loan.

Direct Loans for Bad Credit Borrowers

With bad credit, you still have a chance for a direct loan even though they're typically reserved for people with credit scores of around 660 or above – a good or excellent credit score on the FICO credit scale. Your chances are better if you're a member of a credit union, but if you're not, there are various banks and online auto lenders that may be willing to finance.

When you get a direct loan you go straight to the lending institution, fill out their application form, and then receive an approval or denial after the lender has reviewed it. If you're approved you generally get a check to take to a dealership so you can shop like a cash buyer, or the lender pays the dealer directly once you've chosen a vehicle.

Direct loans are also referred to as pre-approved auto loans. They can be a bargaining chip for you to get an even better deal from a captive lender or through a dealership's own financing department. These lenders may offer you incentives – such as a lower interest rate – if you finance through them instead of your financial institution.

However, since not everyone can be approved for a direct loan, there are alternate options for bad credit borrowers.

Alternate Auto Loans Options

If you're not able to qualify for a direct loan through your credit union or another lender, you can look at two different options: in-house financing and indirect lenders.

In-house financing is also referred to as buy here pay here (BHPH) or tote the note car lots. These dealers are the lenders and don't have to wait for approval from anyone else to get you the financing you're looking for. However, they only sell used vehicles and are likely to charge higher interest rates than others.

These car lots are a good bet for a quick process, even if your credit score is very low because they are known for less stringent auto loan qualification requirements. In many cases, BHPH dealers don't even check your credit, which is part of their appeal to borrowers who have been turned down for lending in the past.

Indirect, or third-party, lenders refer to many independent and captive lenders that are signed up with dealerships. These can include lenders that work with a variety of credit scores. Not all lenders can work with all borrowers, but lenders that specifically work with people who have less than perfect credit are called subprime lenders.

These lenders can work with people who have bad credit, little to no credit score, or past negative accounts on their credit reports as bankruptcy and repossession. They do this by looking beyond your credit score to other factors that can prove you have the ability, stability, and willingness to take on an auto loan.

Building Credit With a Car Loan

Once you get a car loan, especially as a bad credit borrower, it's important that you make all your payments on time and stay on top of your budget so that you don't default. If you make responsible loan payments and prove that you can handle an auto loan for a number of years (they typically last between 48 and 96 months), you may see a significant jump in your credit score over time if you're responsibly handling your other finances as well.

This is because payment history is the biggest factor in calculating your credit score in the FICO scoring model, which is most often used by lenders. This means keeping up with your bad credit car loan could help you improve your credit. This way, you have an easier time getting the financing you need through your credit union or another direct lender next time around.

Do You Need an Indirect Lender?

If you're not having any luck financing your next auto loan through your credit union, it could be time to look for an indirect lender to help you finance. If you're in a bad credit situation and that's what's keeping you from approval, CarsDirect wants to point the way toward your next option.

We've gathered a nationwide network of special finance dealerships over the last two decades that have the lending resources necessary for credit-challenged consumers. Rather than giving up hope of the car loan you need, simply fill out our fast, free auto loan request form and we'll get right to work connecting you with a local dealership that wants to help!

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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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