Deciding whether or not to go with a dealership or a private party seller could largely depend on your credit score, and what kind of lender you qualify to work with.
Direct Auto Loan vs. Cash Sale
If you want to get a vehicle from a private party, you either have to pay cash or get a direct auto loan for it. However, getting a direct loan from a bank, credit union, or online lender can be difficult if your credit isn’t the best.
Typically, direct lenders have higher credit score requirements than dealers that are signed up with subprime lenders. Borrowers who’ve gone through bankruptcy, had some credit bumps along the way, or are new to credit can all have issues getting approved for a car loan by a direct lender.
Generally, credit unions can be more lenient on credit score requirements than banks because they’re member-owned. If you're a credit union member, it helps to have an account in good standing that's been open a while if you want a better chance at an auto loan approval. If your credit score is poor, they may ask you to bring a cosigner, though.
If applying with a direct lender hasn’t worked out for you, you could pay for the private party vehicle with cash if you have it on hand. There are benefits to paying cash, such as not having a car payment each month and avoiding interest charges. Interest is the cost of borrowing money, but financing a vehicle has its benefits, too.
To improve your credit score, you’ve got to take on credit, and have that loan reported to the major credit bureaus. A cash sale won’t be reported, and you may still be in the same type of credit situation the next time you need a car. With an auto loan, though, you can repay your reported loan over a long time, which can help you build a good payment history, and in turn, your credit score.
Special Finance Departments
For borrowers with credit challenges, subprime lenders can be a great resource for car loans and a way to improve your credit for the future. Subprime auto loans are reported to the major credit reporting agencies, so if you manage the loan well, you can improve your credit score.
Subprime lenders don’t offer private party loans, though, since they finance vehicles from dealership lots where they’re signed up. If you’re deemed eligible for a car loan, you choose a vehicle from that dealer's stock which fits within your approval amount.
When you have bad credit, improving your credit score should be a top priority. Better credit typically leads to qualifying for better rates and deals in car buying – and better interest rates means saving more money during the course of your auto loans. For many bad credit borrowers, subprime financing could be the way to boost your car buying power for the future.
Finding a Car Dealership for You
Credit building is a marathon, not a race. Choosing the right lender for your situation means finding one that can offer you more than a vehicle – you should look for the ability to improve your credit health over time, as well.
Finding a dealership with the lending resources you need can be a hassle if you don’t know where to look. Special financing dealers aren’t the easiest to pick out from the crowd, but luckily for you, we already know where they are. We’re Auto Credit Express, and we’ve been connecting borrowers to bad credit dealerships for over 20 years.
To begin the search for your next car, fill out our auto loan request form and we’ll look for a dealer in your area that’s signed up with subprime lenders. Our form is free, carries no obligation, and we’ll get to work for you right away!