Consumer Car Buying Advice Blog

Consumers with bad credit shopping for a new car need to be aware of the three different types of lenders that deal in credit challenged applicants with low FICO scores.

Your odds increase when you fill out an application

At Auto Credit Express our business is to match up consumers with bad credit who have filled out our secure online bad credit car loan application with a dealer in their area that can get them financed. These dealers all over the country use a wide spectrum of lenders and specialize in helping customers with bad credit find the right vehicle and the right lender so that they can begin the process of reestablishing their car credit and raising their credit scores.

We also do our best to educate these consumers on the bad credit car loan process.

One of the things that we’ve learned during our 20 years in the subprime car business is that credit-challenged customers need to understand how the bad credit auto loan process works, which includes an understanding of the different kinds of lenders that are currently in the business of originating second chance car loans as well as where these loans are available – from the biggest franchised dealers to the smallest “tote the note” car lots.

Direct

Direct lenders are banks, credit unions and finance companies that lend money directly to the customer. When applicants are approved for a loan from a direct lender, they can shop for a car like a cash buyer. It also means they need not be concerned about whether or not the dealer can get them financed.

One of the disadvantages of direct lenders, however, is that most have stricter underwriting guidelines. This means that they don’t do a very good job of approving applicants with bad credit. Although there have been a few bad credit auto loan lenders that previously loaned money directly to applicants, most of those lenders have left the market. Direct lenders may finance the following loan types:

Private party auto loans – This are loans that will finance the purchase of a car from a private party. The few direct lenders that deal with bad credit car loans do not offer this option.

Franchised dealership purchase financing – These are loans that will finance the purchase of a vehicle from a dealer that holds a new car franchise (such as Chevrolet, Ford or Honda). All direct lenders that still deal with bad credit car loans will offer this option.

Independent dealership purchase financing – These are loans that will finance the purchase of a vehicle from an independent dealer that has no ties to a new car franchise. Only a few direct lenders that still deal with bad credit car loans will offer this option.

Car loan refinance – Some direct bad credit lenders will offer this finance option.

Indirect lending

Most direct lenders will also offer indirect lending through automobile dealers. Under this program, the lender will often offer the dealership slightly better “buy rates” than they offer their direct customers. The dealer can then choose to offer the customer this rate, or mark it up in order to earn additional profit. It should be noted, however, that most of the lending programs that feature these mark ups deal with prime customers, not bad credit lending.

Indirect lending is the most common type of lending when it comes to consumers with poor credit. The indirect lenders that are available to consumers can vary widely from dealership to dealership, which means that it is very important for bad credit car loan applicants to choose the right dealership before they begin the buying process.

Most bad credit lenders choose the indirect lending model for a couple of reasons:

• The lender has a reasonable assurance from the dealer that the vehicle being financed by the customer is in good repair

• In most states the lender is able to charge the dealer a fee when the lender purchases a finance contract from the dealer

Most indirect bad credit auto loan lenders deal with franchised dealers as well as large mega-sized used car franchises, while on a few do business with the smaller neighborhood independent used car lots. Common examples of indirect lenders include Ford Motor Credit, GMAC, Toyota Financial and American Honda Financial Services (these are examples of indirect lenders, not necessarily lenders that deal with bad credit car loans).

In-house lenders

Also called buy here pay here, we finance everyone, or tote the note lenders, this category consists of a few franchised dealers as well as a larger number of independent car lots that lend money directly to the customer. Unlike conventional lenders that require payments only on a monthly basis, these lenders often insist on bi-weekly or even weekly repayment terms. Many of these dealers will also use a third party company to process the loans and collect the payments.

Dealers offering this type of financing may also offer no credit check auto loans. If consumers can verify that they have a stable job and can afford a car payment, many of these dealers may lend them the money to buy one of their own vehicles in inventory without checking the applicant’s credit report or looking up their credit score.

The bottom line

At Auto Credit Express, our business is the subprime car market. We have helped literally thousands of people with bad, blemished, bruised and tarnished credit buy cars and reestablish their credit at the same time. Our nationwide network of affiliate dealers specializes in bad credit car loans. Out web site will help you determine how much car you can afford and unlike other sites, our toll free number is listed on every page, in case you have any additional questions. When you decide to buy a car, our credit application can be filled out in the comfort and security of your own home.

For more information, visit www.autocreditexpress.com to see what we can do for you.

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