What Kind of Auto Lender Is Right for You?

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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 - October 21, 2020

Car loans aren’t always a one-size-fits-all deal. People are unique, and situations can get sticky, so there are different kinds of auto lenders for financially diverse people. We cover a few different types of car lenders to help you make a more concrete decision when you need an auto loan.

Car Loans and Your Credit Score

You may already know this, but your credit score is a major factor in determining your ability to take on a car loan. Traditional auto lenders are known to turn down borrowers with low credit scores regardless of if they have the income, down payment, and proof that they’re ready for a vehicle.

If your credit is good, then a traditional car loan from a direct lender is likely for you (which we’ll define in a moment!). If you have less than perfect credit, which many borrowers do, then you can explore some other lending options.

While having poor credit can be discouraging, there are ways bad credit borrowers can break into the world of auto financing and repair their credit for future loan opportunities.

Different Auto Lenders

You may think that the only place you can go to for a car loan is your local bank or credit union, and you’re partially right – these places do offer auto loans. But they’re not your only option by a long shot.

Here are some different lender types:

  • Direct auto lender – Found at credit unions, banks, and online. You speak with these lenders directly, and if you’re approved, you’re handed a check for the amount you’re qualified to borrow. Generally, these lenders prefer borrowers with good credit and they tend to offer competitive interest rates.
  • Indirect auto lender – These lenders can be found online or through dealerships. Most dealers are signed up with multiple lending partners, and these are called indirect or third-party lenders. With an indirect lender, you don’t meet with them in person. Instead, you work with the finance manager at the dealership who acts on the lender’s behalf. Indirect lenders vary in their credit score requirements, since there are several types, such as subprime lenders that specialize in bad credit and captive lenders of specific manufacturers (think Ford Motor Credit, etc.). The average interest rate can vary depending on the type of lender you choose.
  • In-financing dealership – In-house financing means that all lending is done at the dealership, by the dealership. While you typically have a dealer and a lender when you take on a car loan, with in-house financing dealerships, they do it all! Many in-house financing dealers don’t check your credit reports, so they’re often a go-to place for borrowers who struggle with credit issues and need an auto loan. Since they don’t review credit reports, in-house financiers tend to assign higher than average interest rates.

Choosing the right lender for your credit situation is just one piece of the puzzle. Car lenders generally have their own down payment, income, and work history requirements. There are some lenders that assist bad credit borrowers, too.

Subprime Auto Lenders

As we mentioned before, there are different types of indirect lenders that are signed up with dealerships. Special finance dealers are signed up with subprime auto lenders, and these ones specifically work with borrowers who have less than stellar credit. They report their loans to the credit bureaus, giving borrowers the chance to repair their credit.

Subprime lenders look at more than just your credit score during the loan process. So, even with poor credit, if you qualify in terms of income, work history, and have a down payment, you could be well on your way to a car loan.

These lenders also have other lending requirements, such as having a working contract phone and a permanent address. Their specific requirements vary, but subprime lenders tailor their auto loans to bad credit borrowers.

If you’re having trouble getting approved by traditional, direct car lenders, then looking into subprime auto loans could be your way of getting your next vehicle. However, you should still do some rate shopping and see what rates you can qualify for.

Rate Shopping = Saving Money

Rate shopping is what it sounds like – you look around for the best rates available to you. This can be a little easier if your credit is spick-and-span, however, it’s still a good idea to look around before you settle with the first lender that approves you.

Many borrowers worry that applying with multiple car lenders is going to destroy their credit – and they'd be correct, if you don't go about it the right way.

Applying for new credit can harm your credit score, though it usually only hurts it by around five to 10 points. The credit bureaus understand that applying for the same type of credit with many different lenders within a small window of time likely means that you’re looking for the best interest rate, so you're not reprimanded for rate shopping.

In order to find the best rate for your auto loan, you can apply with multiple lenders within a rate-shopping window, typically 14 days. This way, only one hard pull is reflected on your credit score. All hard pulls show up on your credit reports, but only one damages your credit score.

Interest charges can stack up, since you’re charged daily on the balance of your car loan (in most cases). This is called the simple interest formula. Many borrowers with poor credit find themselves forking over lots of interest charges over the course of their auto loans, but taking time to find the best rate can help you save money.

With this knowledge, go forth and apply with a few lenders with two weeks and look for the best rate that you and your credit score can qualify for!

Finding a Bad Credit Auto Loan

As we mentioned before, dealerships are typically signed up with indirect car lenders. If you’re having trouble getting approved for an auto loan by yourself, and you don’t have a cosigner to increase your approval odds, then consider a subprime car loan.

Subprime lenders are signed up with special finance dealers, and they work with all types of unique credit situations. Finding a special finance dealership can be as easy as completing our free auto loan request form.

Here at CarsDirect, we’ve created a nationwide network of dealers, and we know which ones are equipped to assist bad credit borrowers. Fill out our secure, quick, and no-obligation form now to begin your car shopping journey.


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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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