Special financing is a general term for bad credit auto loans. Whether your bad credit is situational, like a vehicle repossession or past bankruptcy, or if you are new to the world of credit, special financing may be what you need for your next car loan if traditional lenders give you the solution.
Special funding vs. traditional funding
When thinking about getting a car loan, the first picture that comes to your mind is going to the bank with your paperwork, asking the lender to determine your eligibility, and then handing over a check to a dealership. It’s called a direct loan, and it’s one of the most common ways for consumers to finance a vehicle.
However, direct loans and pre-approvals can be difficult to obtain if your credit score is less than stellar.
Direct auto loans from banks, credit unions, and captive auto lenders tend to require borrowers to have a credit score above 660. While this is not a universal rule, bad credit is. generally considered a credit score lower than this figure, regardless of the cause. the lowest score. Some traditional lenders may not look too deeply at your credit history – if you don’t take the reduction, that’s it – you may not be approved even if you have the income to pay off the loan.
However, with special financing from subprime lenders or internal financing, you have a better chance of getting the auto loan you need. Some of these lenders skip the credit check altogether, while other special finance lenders don’t deny you financing just because your credit score is low.
Special financing: subprime lenders
Subprime lenders are third party or indirect lenders. Unlike a direct auto loan, you don’t speak directly to the lender during the application process. A special finance dealer who has registered with these lenders has special finance managers who communicate with the lender on your behalf.
You can finance new and used cars with a subprime lender. Most of them require their borrowers to finance a vehicle less than 10 years old, with less than 100,000 miles.
Notable Aspects About Subprime Lenders:
- They help borrowers with unique credit circumstances
- Many subprime lenders have first-time car buying programs
- Your auto loan eligibility is determined before choosing a vehicle
- You are generally required to have a down payment of at least $ 1,000 or 10% of the vehicle’s selling price
- Subprime auto loans are usually reported to major credit reporting agencies
- They do not issue a private loan
The subprime financing process:
To apply for a subprime car loan, look for a dealership that has registered with them. The special CFO sends your documents and information to their lending partner (s) to see if you qualify for an auto loan. If you’re approved, the lender sends a payment call, which tells the dealer the highest monthly payment you’re eligible for. From there, you choose a vehicle that matches that payment call.
Special funding: internal funding
Internal financing is done through BHPH (Buy Here Pay Here) concessions. In some areas, they are called the used car lot catch-all. These dealerships only sell used vehicles and the dealership is your lender.
Since the dealership has a dual role in selling and financing the car, they often skip the credit check. If the dealership doesn’t pull your credit reports, then a bad credit history wouldn’t have a say in your car loan eligibility. For borrowers with serious credit issues, such as a bankruptcy termination, multiple missed / late payments, collection accounts, or repossession that is less than a year old, in-house financing could be the answer to your non-car problem.
Important aspects of internal financing:
- Used cars only
- Down payment required, possibly up to 20% of the vehicle’s selling price
- A credit check may not be required
- BHPH loans are usually not reported to credit bureaus
- Dealers do not issue private loans
- Interest rates are generally higher at these locations
The internal financing process:
First, locate a BHPH or transport the ticket vendor. You can either choose a vehicle and then apply for financing, or speak to the dealership about your auto financing options. The dealership usually verifies your employment, monthly income, and identity, and if you are approved, you complete car purchase documents and finance documents with the dealership. Many borrowers who buy from BHPH dealers can choose a car, get financing, and take delivery the same day.
Which special financing option is right for you?
It’s up to you to choose the right special financing option for your situation! However, we can offer some advice.
If credit repair is a priority for you, a subprime lender may be a better choice. These lenders almost always report their auto loans and timely payments to the credit bureaus. If a loan goes unreported, your payments do nothing to improve your credit score. That being said, if you choose an auto lender that does not check your credit reports, it is unlikely that they will report the loan either.
Another thing to consider is your current credit situation. Although subprime lenders can work with many different credit circumstances, they cannot help all borrowers in all situations. For example, subprime lenders do not approve loans for borrowers whose repossession of their credit reports is less than a year old. That being said, if you are interested in trying to get a car loan from a subprime lender, it may be worth applying to see if they can help you before heading to a BHPH dealership. Generally, BHPH dealers are considered a loan option of last resort for borrowers with bad credit.
We have bad credit connections!
AT Express auto loan, we know a thing or two about special funding. We’ve created a coast-to-coast network of special financial concessions, and we want to connect you to one in your area.
Instead of traveling around town hoping to meet a dealership who can help you with credit challenges, fill out our free auto loan application form and we’ll do the research for you. There are never any fees or obligations to be matched with a dealer, so get started now!