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Buying a Car on Finance with Bad Credit

There is a good reason why consumers with bruised credit frequently have difficulty finding the right types of lenders on their own
Buying a Car on Finance with Bad Credit
What we know

People with questionable credit often have issues with finding the right kind of lenders when they need an auto loan because in most cases they’re unaware of how buying a car on finance with bad credit works.

At Auto Credit Express we understand why this happens because we’ve spent the past two decades helping car buyers with poor credit scores find those dealers that can give them their best chances for car loan approvals.

The reason we phrase it this way is because “dealer” financing is a key part of the process. But before we explain why, it’s probably a good idea to first have an understanding of the three types of lenders. So here goes:

Direct lenders

As the name suggests, direct lenders arrange auto loans directly with consumers. This means that when you work with these lenders you can shop around for a new or used car just like a cash buyer.

Direct lenders typically finance at least some and sometimes all of the following loan types:

• Private party auto loans – some of them offer auto loans to purchase a vehicle from an individual
• Franchised new car dealership purchase financing – all of them offer auto loans to purchase a new or used car at a franchised new car dealer (Honda, Ford, Hyundai, etc.)
• Independent dealership purchase financing – some of them offer auto loans to purchase a used car at an independent used car lot
• Car loan refinance – some of them offer refinancing options for existing auto loans

Note: Direct lenders are known to have stricter loan guidelines and typically offer auto loans only to those car buyers with good to excellent FICO scores.

BHPH lenders

At the very opposite end of the lending spectrum are some franchised dealers and quite a few independent used car lots that offer programs known as tote the note, in-house finance, buy here pay here or no credit check auto loans. These dealers lend money directly to car buyers so that they can finance the vehicles on their lots, often with weekly or bi-weekly repayment terms. In some instances these dealers use a third party to process the loans and collect the payments.

The requirements for these loans are also fairly easy. Typically, if you have a stable job and can afford a car payment, most BHPH dealers will offer you an auto loan approval without even checking your credit report.

Note: As a rule BHPH dealers don’t report loans or loan payments to the credit bureaus, so borrowers usually find themselves in the same credit situation the next time they need an auto loan.

Indirect lenders

Indirect lenders purchase auto finance contracts through licensed car dealers. These lenders typically finance the following loan types:

• Franchised new car dealership purchase financing – pretty much all indirect lenders offer auto loans to purchase a new or used car at franchised new car dealers as the list of indirect lenders includes the captive finance companies such as Honda Financial Services (franchised Honda dealers), Ford Credit (franchised Ford dealers) and GM Financial (franchised GM dealers).
• Independent dealership purchase financing – some indirect lender offer auto loans to purchase a used car at independent used car lots.

Note: The number and type of indirect lenders available to customers can vary widely from dealership to dealership – from the captive finance companies listed above to finance companies that specialize in loans to credit-challenged buyers, although many new car dealers don’t want what they consider to be the hassle of working with people that have problem credit.

It should also be pointed out that a much higher percentage of indirect lenders choose to do business with franchised new car dealers than with independent used car lots. These lenders also choose to lend indirectly because they:

• Have reasonable assurances from the dealer that the vehicle on the contract they’re buying being sold is being described accurately by the dealer.
• Are often able to charge the dealership a fee to purchase the finance contract.

Although these lenders don’t necessarily finance buyers with poor credit, indirect lending using “dealer arranged” financing is the most common type of lending available to people with either non prime or subprime credit.

But with many new car dealers not signed up with many of these non prime and subprime auto lenders, how can car shoppers with less than perfect credit find the right kind of dealers without having to either call or drive around their area?

Glad you asked.

How we can help

Here at Auto Credit Express we concentrate on matching applicants that have experienced car credit problems with dealers that can offer them their best opportunities for approved car loans.

So if you’re ready to establish your auto credit, you can begin now by filling out our online car loans application.

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