Special Financing Car Loans Can Lead to Better 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 - August 18, 2020

Just because you have a lower credit score doesn’t mean that you’re out of luck in getting approved for vehicle financing. In fact, there are bad credit auto lenders that can assist you in getting a car loan and helping you repair your credit.

Special Financing Auto Loans and Bad Credit

Not every lender can work with every type of borrower. Most traditional lenders largely avoid borrowers with credit scores below around 660, but there are lenders for unique credit situations: subprime lenders.

Not every dealer has access to subprime lenders, though. They work through dealerships that have a special finance department, hence the name “special financing.”

The manager at the special finance department acts on the subprime lender's behalf to help you through the bad credit lending process. The finance manager verifies your information with documents you provide, then your info is sent to one or more subprime lenders. If you qualify for special financing, the lender tells the dealer what your maximum monthly auto loan payment can be based on your personal situation.

From there, let the car shopping begin! You work with the dealership to find a vehicle that fits your needs and falls within the monthly payment you qualify for.

Perhaps the biggest advantage of subprime auto loans is the chance for credit repair. Some other bad credit dealers that use in-house financing don’t report their car loans to the credit bureaus, which means your on-time payments don’t improve your credit. Subprime loans, on the other hand, are reported. If you manage the loan well, and stay diligent with your payments, you can come out on the other side of a bad credit auto loan with an improved credit score.

Requirements for Special Financing

Qualifying for special financing means you need to prove you can handle taking on the car loan. While lenders vary in their specific requirements, they’ve got similar stipulations.

Here’s a list of common requirements and the documents you’re likely to need to qualify for special financing:

  • Income – You must pay for the vehicle! Bring your most recent computer-generated check stub to prove your income. Most subprime lenders require borrowers to have a minimum monthly income of around $1,500 to $2,500 before taxes. You also need to have enough of that income available to pay for the loan and insurance, and the lender looks at that, too.
  • Residency – Subprime lenders need to verify your address. Have a recent utility bill or bank statement in your name on hand.
  • Driver’s license – You need a valid driver’s license to be able to do a test drive, and drive the car off the lot. It’s also used to verify your identity.
  • Working phone – The lender needs to be able to contact you. Prove you have a working cell phone or landline phone with a recent phone bill in your name.

These are usually the up-front stipulations that subprime lenders verify. After it’s determined that you qualify for special financing, expect to need a down payment as well.

As a general rule, bad credit lenders require at least $1,000 or 10% of the vehicle’s selling price. A trade-in with equity can also help you meet the down payment requirement, and you can always put down more than the minimum amount to lower your monthly car payment and interest charges.

Additionally, subprime lenders almost always ask for a list of personal references. You’re likely to need a list of around five to eight references with complete contact info: name, phone number, address, and email addresses. The references can be anyone you’d like, as long as they don’t live with you.

Qualifying for special financing can be its own beast, working on repairing your credit with an auto loan is another thing entirely.

Repairing Your Credit With Special Financing

Sometimes, repairing your credit is easier said than done. For this reason, we’ve got a list of things to help you prepare for your car loan, and set your credit up for success:

  • Opt for a cheaper, reliable vehicle currently. It’s often recommended that bad credit borrowers start their credit repair journey with a used vehicle. Used cars are almost always the cheaper option, which also means more vehicles to choose from off the dealer’s lot. Secondly, a used car has less of a chance of being stuck in a negative equity position, which is when you owe more on the vehicle than it’s worth. Since new cars are more expensive, and bad credit borrowers are more likely to only qualify for a higher interest rate, the interest charges can stack up on a large loan.
  • Consider the price of full coverage auto insurance. All financed vehicles are required to have full coverage insurance, and it’s usually considerably more expensive than bare minimum coverage. Newer cars are typically more expensive to insure, since they tend to have more bells and whistles, and those aren’t cheap to replace.
  • Think long-term about your loan. Put down as much as possible, and keep your monthly payment in a manageable range. Don’t go for the longest loan term you can, either, since this means paying more in interest charges while you owe on the vehicle.
  • Budget for other car-related expenses. Auto insurance, for one, is a costly vehicle expense. But what about the cost of unexpected repairs? Are you prepared to pay for those if the situation arises? Consider the price of gas, and think about your commute to work or school, and check out fuel-efficient cars if you drive a lot. Additionally, remember the cost of regular maintenance like oil changes, new tires, tire rotations, replacing brake pads, and other maintenance costs.

Remember to think long-term about your auto loan – they’re big commitments! Consider the overall cost of the vehicle, not just the price on the window. If you’re prepared, it can mean less of a chance of being blindsided by unexpected costs, or overextending yourself. Repairing your credit should be a top priority with a bad credit car loan.

Once you’ve completed the auto loan and made on-time payments, you could be looking at a credit score in the green at the end of the loan. Another quick tip: most negative marks on your credit reports drop off after seven years, so make sure that all bill payments are made on time from here on out!

Looking for a Special Finance Car Dealership?

Remember how we mentioned that not every dealership works with subprime lenders? It’s true, and they can be hard to differentiate from the crowd. This is where we can help!

At CarsDirect, we’ve got connections all over the country, and we know which dealers have special finance departments. To get matched to a dealership that has bad credit lending abilities, fill out our auto loan request form. It’s completely online, free, and secure, and we’ll do the looking 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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