Lender Options for Bad Credit Car Buying

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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 11, 2020

You may be surprised to learn that you have more car buying options than you think when you have poor credit. The process may not be as clear-cut as it is for people with good credit, but you still have several avenues of car buying opportunity open to you.

Lenders for Bad Credit Borrowers

If you think your only option for getting a car with poor credit is to pick out some cheap clunker from a private seller, rest assured that it's not. There are actually several options for getting the auto loan you need when it comes to having bad credit. Let's take a look:

Direct Lenders:

When people think of a traditional loan, or pre-approval, the kind of loan they're thinking of comes from direct lenders. Direct loans can come from a bank, credit union, or online finance company. These are loans that you apply for directly with the lender and, if approved, you get a check good for the maximum that you’re approved for. You can take this to a dealership or private seller in order to purchase a vehicle within that price range.

These auto loans may come with a slightly better interest rate, depending on your credit score, than a loan through a lender at a dealership. However, they can be difficult to qualify for, and are usually reserved for people with good credit.

It may be easier to qualify for one of these loans at a credit union if you're a member in good standing, because credit unions are typically member-driven, not-for-profit businesses. These lenders can pass savings on to borrowers more easily, and may be more willing to look at borrowers with less than perfect credit than for-profit financial institutions like banks.

Indirect Lenders:

Indirect lenders, such as subprime lenders and captive lenders, provide loans through car dealerships. Subprime lenders work through special finance dealers, and can help people with less than perfect credit because they look at additional factors for approval consideration, not just your credit score.

Captive lenders are the financial arms of manufacturers. These lenders can offer exclusive deals, and sometimes are able to work with people in a wide range of credit situations, depending on the automaker. Only franchised dealerships are signed up with captive lenders, and not all dealers work with subprime lenders, so you may have to do some searching if this is what you're looking for.

In-House Financing:

In-house financing dealerships, also known as buy here pay here (BHPH) dealers or tote the note car lots, are typically a last resort if you're looking for a bad credit auto loan, or if you've been turned down for financing through a subprime lender. These dealerships are also lenders, and typically have an easier time financing people with low or no credit. Since BHPH dealers don't rely on outside lenders, they often don't check your credit.

BHPH dealerships only finance used vehicles, and usually charge a higher interest rate and/or require a larger down payment to make up for the lack of a credit check.

Finding the Right Lender for Your Auto Loan

So, how do you know which type of lender is right for you? This has a lot to do with your credit, and the type of car you're looking for. As a bad credit borrower, you may qualify for a loan with any of these types of lenders, but looking for a loan through a subprime lender is typically your best bet.

Subprime lenders are prepared to work with you if your credit isn't the best, and they can often provide you with a loan for a new, used, or certified pre-owned vehicle. You can't find these lenders at every dealership, though, and you could spend a lot of time and hard-earned money driving around looking for a dealer that uses them. Unless you turn to us, that is.

Here at CarsDirect, we’re teamed up with a network of special finance dealerships which spans the country, and we want to help you find one in your area. The process is free, quick, and simple to get started. Just fill out our no-obligation auto loan request form and we'll get to work for you.

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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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