Consumer Car Buying Advice Blog

There are three main categories of auto finance lenders for people with bad credit. They are Direct Lenders, Indirect Lenders, and Buy Here Pay Here In House Financing.

Direct Bad Credit Auto Loan Lenders

Direct lenders lend money directly to the consumer. When you borrow money from a direct lender you can shop like a cash buyer. Direct lenders, however, have more strict underwriting guidelines, that is to say they do not do a very good job approving people with bad credit. I would recommend that you have a credit score above 580 if you apply with a direct lender. Direct lenders may finance the following loan types:

Private party auto loans

A private party auto loan is a loan to purchase a car from a private party. Most direct lenders for people with bad credit do not offer this option.

Franchise dealership purchase financing

All direct lenders will finance a car purchased at a franchised dealer, for example a Ford, Chevrolet, or Toyota dealer.

Independent dealership purchase financing

Most, but not all, direct lenders will finance a car purchased at an independent used car lot.

Car loan refinance

Some direct lenders offer refinancing existing auto loans for people with bad credit, again, I would recommend a credit score of 580 or above, prior to refinancing a bad credit auto loan.

Most direct lenders also have indirect lending programs for local dealers. When this is the case, often the lender will offer the dealership slightly better buy rates than they offer their consumers. The dealership can choose to offer the customer the lower rate or they may mark up the rate and earn additional profit.

Indirect Bad Credit Car Loan Lenders

Indirect lenders purchase auto finance contracts from the car dealer. This type of lending is most popular for people with bad credit. The indirect lenders that a dealership is associated with vary widely from dealership to dealership. Many lenders choose the indirect lending route for a few reasons:

• They have reasonable assurances from the dealer that the vehicle sold is in good repair.
• They are able to charge the dealership a fee when they purchase the contract.

Far more indirect lenders choose to do business with franchised dealers than independent used car lots.

A common example of indirect lenders is Ford Credit, GMAC, Chrysler Financial, and Toyota Financial, and Honda Financial Services. I’m not saying that these finance companies finance people with bad credit; they are merely examples of indirect lenders.

Buy Here Pay Here In House Financing

Some franchise dealers and many independent used car lots offer in house – buy here pay here auto financing as an option. These We Finance dealers lend money directly to the consumer, often with weekly repayment terms. It is common for a buy here pay here dealer to utilize a third party to process the loans and collect the payments.

Dealers that offer this type of financing may also offer no credit check auto loans. In other words, if you have a stable job and can afford a car payment they may lend you the money to buy a car without checking your credit report.

Summary

The type of lender that you deal with depends on a number of factors. Primarily you credit score and where you choose to purchase a car. Following is a side by side comparison of the services offered by the different lender categories discussed.

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