It’s possible to work with a captive lender if your credit is less than perfect. In fact, in some cases, working with a captive lender is ultimately easier than working with other finance companies or borrowing through your bank or credit union.
Captive Auto Lending
A captive auto lender is a finance subsidiary of a car manufacturer. They handle lending specifically for their brand(s). Most manufacturers have a captive lender – Toyota Financial Services, GM Financial, Ford Credit, and Hyundai Motor Finance are a few examples. Like a number of finance sources you find at a dealership, they’re indirect lenders, so you can’t sit down face to face with them.
Captive lenders are just one auto financing option to consider when you need a new or used vehicle with poor credit. As with all financing options, keep in mind that approval isn’t guaranteed, especially if your credit score is below 620. But, depending on your situation, you may be able to get financing through a captive lender. Let’s look at the pros and cons of using a captive lender.
The Pros and Cons of Captive Lenders
One thing that’s unique about captives is that they’re the only lenders who can offer below-market interest rates on car loans and leases. When you see a sale on specific models at a dealer (for example, zero percent APR financing for 12 months on a new Toyota Camry), these deals are being offered by the captive finance company.
Deals that are cash on the hood – $2,000 cash back on the latest Volkswagen Beetle, for example – are typically offered across the board, regardless of where you’re getting financing. Sometimes, however, you can get a better deal on a specific make or model through the captive lender if they're offering additional incentives.
Besides getting a better deal, captive lenders may offer other advantages for getting financing through them such as:
- Lower interest rates – Because they’re a division of a manufacturer, captive finance companies often adjust interest rates – sometimes below the market rate – to move specific cars off dealer lots. This is something direct lenders and independent finance companies can't do, as it means losing money.
- More flexibility – These lenders are also able to tighten and loosen lending guidelines more quickly than than banks and finance companies in response to vehicle sales and market conditions. This means that, depending upon the situation, captive lenders approve borrowers with bad credit that they'd normally turn down.
With captive lenders though, there are some downsides as well:
- Short terms, high payments – You may find that the lowest interest rates are sometimes only offered for short loan terms (36 to 48 months), and you may not be able to afford the higher monthly payments.
- Lower interest rate versus cash rebate – In some cases, manufacturers offer the choice of a lower interest rate from their captive lender or a cash rebate. Check out both offers. Choosing the cash rebate and getting financed from another lender may turn out to be the better deal, especially if you have bad credit.
- Pushing for more – When you’re getting a loan through a dealership’s finance department, they're likely to try to sell you a number of add-ons. Some, like GAP coverage, make sense, while others, like window etching, are unnecessary. These dealer add-ons increase the loan amount and be costly if you don’t catch them and have them removed before signing your contract.
If you’re considering financing through a captive lender, weigh the pros and cons to make sure it’s the best option for you.
Find Your Financing with Less Stress
When you have poor credit, it doesn’t mean you’re out of options when it comes to auto financing, it just means that the process for getting that financing may be a little more rigorous than usual. The biggest downside is that you have a smaller number of lenders willing to work with you than someone with good credit.
We know how stressful it can be to go from dealer to dealer trying to find the right indirect lender. If you need a car loan, and haven’t been able to get financed through a direct lender, Auto Credit Express wants to help. Though we can’t guarantee a captive lender, we do work with an extensive network of dealerships all across the country that has lending solutions to help people with poor credit. To get started finding the right dealer in your local area, simply fill out our online auto loan request form today!