Good Car Dealers for Bad Credit Auto Finance. Buying a Car with Bad Credit.
If you have good credit, you can go to your local bank or credit union and get pre-approved for an auto loan before you shop
at a local dealer. This is not the case if you have bad credit. Most of the leading national auto finance companies for people
with bad credit do not lend money directly to consumers. Instead, they purchase the contract from the car dealer after the
loan has closed. In other words: The car dealer initially provides the financing, and then the dealer sells the finance
contract to a finance company. Anyone who has had a mortgage should be familiar with this process.
When the car dealer sells the auto finance contract, they can sell it at face value, earn a reserve, or pay a discount.
Often at the point of sale, the dealer does not know which of these will occur. In other words: If you finance a car for
around $10,000, the dealer could sell the contract for $9,000, $10,000, or even $11,000.
Many dealers are not willing to take this risk; the risk of selling a $10,000 contract for $9,000. Because of the risk
involved, there are still many dealers that either do not participate in the bad credit lending area, or have only a few
lenders in place to finance people with bad credit.
In the car business it is often said that the dealer makes their money when they buy a used car, not when they sell it.
For example, a 2008 Ford Taurus with average miles on it has a retail value, at the time of this filming, of around $16,000.
A high-volume car dealership with a good used car buyer may be able to acquire this car for as little as $12,500. A low-volume
dealer with a mediocre used car buyer may acquire this car for around $14,500.
Under which scenario would you sleep better at night? If you paid $15,000 for a car from the dealer with a good used car
buyer, knowing that they made a $2,500 profit? Or if you paid $16,000 at the dealer with a mediocre used car buyer, knowing
that they only made a $1,500 profit.
Don't answer that question just yet, because it gets a little better. I'm going to take the above example one step further.
The good car dealer has 20 subprime lending sources, and the other car dealer only has 4. The best terms the other car dealer
is able to acquire for you is a 25% interest rate and 48 months to repay the loan. Assuming you had enough money down to
cover the taxes and state fees, your monthly payment would be around $520, and the total of your principal loan amount and
interest would be around $25,000. Since this car dealer only has 4 subprime lenders in place, they sell your loan for only
$15,000 and lose $1,000 on the financing alone. The best terms that the good car dealer is able to acquire for you is 16%
interest rate and 60 months to repay the loan. With this dealer, your monthly payments are around $360 and the total of
principal and interest is around $21,600. Since the good car dealer has 20 subprime lenders in place, they are able to sell
your loan for $16,500 and they make a $500 profit on the financing alone.
To recap, visit the wrong dealer and you could pay $16,000 for the 2008 Ford Taurus and the dealer makes only $500 from the
transaction. Visit the dealer that specializes in subprime financing and pay $1,000 less for the same car, while the dealer
makes $3,000 total profit, but you pay $160 less per month and $3,300 less over the life of the loan. Is the dealer that
specializes in subprime financing taking advantage of the consumer by yeilding $3,000 profit. I don't think so. I believe
it's a reward for a job well done.
Auto Credit Express is the nation's largest network of dealerships that specialize in subprime financing.