How Poor Credit Financing Works

Due to the way most high risk lenders do business there is a reason why borrowers with damaged credit often have difficulty finding one when they need a car loan
How Poor Credit Financing Works
Our experience

It has been our experience that consumers with bruised credit often don’t understand why it can be difficult finding the right kinds of lenders when it comes time to apply for an auto loan.

Here at Auto Credit Express we understand why this situation occurs because we’ve spent over twenty years helping car buyers with poor credit searching for online auto loans find those dealers that can offer them the best chance for an auto loan approval.

For credit-challenged car buyers, this “dealer” financing is the key to getting approved. But before we explain why this is the case, it’s probably a good idea to first have an understanding of the three types of lenders.

Direct lenders

As the name implies, direct lenders arrange auto loans by working directly with consumers. This means that when borrowers are approved by one of these lenders they can shop around for a new or used car like a cash buyer.

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

• Private party auto loans – some offer auto loans to purchase a vehicle from an individual
• Franchised new car dealership purchase financing – all will 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 will offer auto loans to purchase a used car at an independent used car lot
• Car loan refinance – some of these lenders also offer refinancing options for existing auto loans

Note: Direct lenders are known for having stricter lending rules and they typically offer auto loans only to those borrowers with good to excellent FICO scores.

BHPH lenders

At the very opposite end of the lending spectrum are those franchised dealers and many independent used car lots that offer a lending program that uses many titles: tote the note, in-house finance, buy here pay here and no credit check car loans. These dealers lend money directly to buyers to finance the vehicles on their lots, typically with weekly or bi-weekly repayment terms.

Qualifying for one these loans is fairly simple. Typically, if a borrower has a stable job and can afford a car payment most BHPH dealers will approve the application without even running a credit report.

Note: As a rule BHPH dealers don’t report loans or car payments to the credit bureaus, so these buyers usually find themselves in the same credit situation the next time they need a vehicle.

Indirect lenders

Indirect lenders work with and purchase auto finance contracts through licensed car dealers. They typically finance the following loan types:

• Franchised new car dealership purchase financing – nearly all indirect lenders will finance the purchase of a new or used car at a franchised new car dealer. In fact, 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 lenders will offer auto loans to finance the purchase of a used car at an independent used car lot.

Note: The number and type of indirect lenders available to car buyers can vary widely from dealership to dealership – from the captive lenders to finance companies that specialize in loans to borrowers with bad credit. It’s also true that many new car dealers don’t want to make the time or the investment required to work with people that have experienced credit problems.

One more point: a higher percentage of indirect lenders choose to do business with franchised new car dealers than with independent used car lots. These lenders choose to lend indirectly because they:

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

Although indirect lenders don’t always finance buyers with problem credit, the indirect lending model with “dealer arranged” financing is the most common type of loan available to people with either non prime or subprime credit scores.

However, since many new car dealers aren’t signed up with non prime and subprime auto lenders, how can borrowers with less than prime FICO scores find those dealers that are without wasting a considerable amount of time and effort?

Glad you asked.

How we help buyers

Here’s a tip for borrowers with credit issues: if you have lousy credit or you’ve been turned down for a conventional car loan, it doesn’t mean the only option is a BHPH dealer. That’s because Auto Credit Express matches applicants with car credit problems to dealers that can offer them their best opportunities for approved auto loans.

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

Posted on September 5, 2013 by in Auto Loans
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