Just because you have bad credit doesn’t mean you can’t get a car loan. However, it does mean that getting a private party auto loan is more difficult. Keep reading to figure out why this is.
Private Party Auto Loans and Direct Lenders
Private party car loans give a buyer the ability to finance a vehicle they purchase from a private seller rather than a dealership. These loans are usually financed by direct lenders such as banks and credit unions.
Private party auto loans can be a great way to get a good deal on a used car, but most direct lenders have specific requirements that need to be met. If your credit isn’t up to par, you likely aren’t going to be able to get approved for a private party auto loan. Direct lenders have strict credit score qualifications, so you can expect to be turned down if yours doesn't meet their threshold.
So, if you can’t get a private party car loan with bad credit, what’s your next move? Auto Credit Express can help you get connected to the resources that can help, but we first want to explain the types of lenders you could be working with.
Bad Credit Auto Financing Dealers
If your FICO score falls below around 600, it might not be possible to get a private party auto loan right now. You should still try and see if you can get approved with your bank, credit union, or another online lender.
If you're turned down, you may have to give up on the private sale route for now. Instead, you have a better chance of getting approved for a car loan through a dealer that knows how to handle less than perfect credit.
There are two broad types of bad credit car dealerships:
- Special finance dealerships – These dealers are signed up with subprime lenders that specialize in bad credit financing. They use your credit score to qualify you, but they also rely on multiple other factors. Subprime lenders ask that you provide proof of income, proof of residence, proof of a working phone, and a down payment. When you take out an auto loan with a subprime lender, you get the chance to build your credit score over time with on-time payments. Ideally, this would allow you to get a private party car loan in the future.
- Buy here pay here dealerships – Buy here pay here (BHPH) dealers are a type of in-house financing dealership. The process of getting an auto loan is typically faster and easier because they are also the lender and they don't your credit score to qualify you. Instead, BHPH dealers base approvals on your income and require a down payment. Be aware that some BHPH don't report loans or on-time payments to the credit bureaus, which means the loan won't help you improve your credit score.
Both lenders generally only offer interest rates that are higher than average. While a higher rate increases the overall cost of a loan, you can lower it by making a sizable down payment, or possibly by adding a co-applicant with good credit. You can read more about how to save money on your bad credit car loan here.
Ready to Get a Car Loan?
A private party auto loan may not be in the cards right now if your credit isn’t great. Luckily, you can take steps toward improving your credit score and get a vehicle with a subprime car loan.
Auto Credit Express matches consumers to local dealerships that specialize in helping consumers in different kinds of credit situations. See what we can do for you by filling out our secure and free auto loan request form today.