The Truth about Bad Credit Car Loans and Instant Approval

Get Car Financing
Even with poor credit.

By

Contributing Writer

David Topham covers the automotive and auto finance industries as the Content Manager of Auto Credit Express who also contributes to CarsDirect. He was born and raised in Michigan and is a graduate of Michigan State University.


, Contributing Writer - September 26, 2017

Consumers with bad credit need to be careful of any company that promises to pre-approve their car loan or offers "instant approval." It's hardly ever as simple as advertisements make it seem.

Ads claiming customers can "get approved for a low interest auto loan regardless of your credit" seem too good to be true. Take a moment to think about those types of statements. Does it make sense for a company to offer "guaranteed approval" on a big-ticket credit item to consumers with poor credit? You don't have to know much about the auto finance market to figure out the answer is "no."

There are finance companies that work with consumers dealing with credit problems, but these businesses don't guarantee credit approval or instant decisions if they're legitimate. That isn't how bad credit auto loans work.

Auto Loans: Good Credit vs. Bad Credit

Consumers with good or great credit can hop online and get pre-approved for a car loan by filling out a lender's application. Borrowers with less than perfect credit have no such luck.

Most traditional lenders aren't willing to work with borrowers with below average credit scores. Instead, these borrowers need to look for special financing from a subprime lender. These lenders work indirectly through car dealerships, meaning they won't offer instant decisions.

Borrowers with poor credit will need to apply with one of these dealers. Once a customer fills out an application, the dealership will send it to one or more of their lending partners, who will then decide if the buyer is approved and on what terms.

Keep in mind that one of the main reasons subprime financiers don't lend directly is because borrowers need to provide a few documents at the dealership. These include proof of income and residence, a valid phone number, and a list of personal references.

"We Finance Everyone" Dealerships

Another barrier to "instant approval" is that subprime lenders have requirements. Reputable subprime lenders have rules about minimum income, credit history, residence, and issues like bankruptcy and repossession. Needless to say, not every applicant is going to be able to get approved.

Why, then, do some dealerships advertise the fact that they are willing to finance everybody? Legitimate car lots that offer financing to all do exist, but there is still a catch.

These dealers finance auto loans in house, meaning they don't use third-party lenders. Sometimes these places are referred to as buy here pay here (BHPH) dealerships. These dealers don't check credit histories. Instead, they're willing to approve consumers based on their income. They may claim to offer loans to everybody, but a borrower won't be able to get approved unless they have the necessary income.

The biggest drawback with BHPH dealerships is that they often won't report a borrower's loan or positive payments to any of the credit bureaus. This means that these types of car loans will do nothing to improve the buyer’s credit. Borrowers with imperfect credit should try to get a bad credit auto loan through a third-party subprime lender first.

An Easier Way to Find Financing

Finding a dealership that can help can also be difficult for consumers dealing with bad credit. CarsDirect is here to make that easier. Our fast and free service connects car buyers to local dealers that are teamed up with subprime lenders. Take the first step toward your next vehicle by filling out our secure car loan request form today.

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, Contributing Writer

David Topham covers the automotive and auto finance industries as the Content Manager of Auto Credit Express who also contributes to CarsDirect. He was born and raised in Michigan and is a graduate of Michigan State University.


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