Special financing is a broad term for bad credit auto loans. Whether your poor credit is situational, like a past vehicle repossession or bankruptcy, or if you’re just starting out in the world of credit, special financing may be what you need for your next car loan if traditional lenders are giving you the runaround.
Special Financing vs. Traditional Financing
When you think of getting a car loan, the first image that may come to your head is going to the bank with your documents, having the lender determine your eligibility, and then getting a check to hand to a dealership. This is called a direct loan, and it’s one of the most common ways for consumers to finance a vehicle.
However, direct loans and preapprovals can be hard to qualify for if your credit score is less than stellar.
Direct auto loans from banks, credit unions, and the captive lenders of automakers tend to require borrowers to have credit scores above 660. While this isn’t a universal guideline, bad credit is typically considered a credit score below this, regardless of what caused the lower score. Some traditional lenders may not look too deep into your credit history – if you don’t make the cut, that’s it – you may not get approved even if you have the income to repay the loan.
With special financing done by subprime lenders or in-house financing, though, you have a better chance of getting the auto loan you need. Some of these lenders completely skip the credit check, while other special financing lenders don’t deny you financing simply because your credit score is poor.
Special Financing: Subprime Lenders
Subprime lenders are third-party or indirect lenders. Unlike a direct auto loan, you don’t speak to the lender directly during the application process. A special finance dealership that’s signed up with these lenders has special finance managers who communicate with the lender for you.
You can finance both new and used cars with a subprime lender. Most of them require that their borrowers finance a vehicle that’s less than 10 years old, with less than 100,000 miles.
Noteworthy aspects about subprime lenders:
- They assist borrowers in unique credit circumstances
- Many subprime lenders have first-time car buyer programs
- Your auto loan eligibility is determined first before you choose a vehicle
- You’re generally required to have a down payment of at least $1,000 or 10% of the vehicle's selling price
- Subprime car loans are typically reported to the major credit reporting agencies
- They don’t issue private-party loan
The subprime financing process:
To apply for a subprime car loan, locate a dealership that’s signed up with them. The special finance manager sends your documents and information to their lending partner(s) to see if you qualify for an auto loan. If you’re approved, the lender sends a payment call, which tells the dealer the highest monthly payment you qualify for. From there, you choose a vehicle that fits within that payment call.
Special Financing: In-House Financing
In-house financing is done through buy here pay here (BHPH) dealerships. In some areas, they’re called tote the note used car lots. These dealerships only sell used vehicles, and the dealer is your lender.
Since the dealer plays a double role in car selling and financing, they often skip the credit check. If the dealer doesn’t pull your credit reports, then a poor credit history wouldn’t have a say in your auto loan eligibility. For borrowers with serious credit issues, such as a bankruptcy dismissal, multiple missed/late payments, collection accounts, or a repossession that's less than a year old, in-house financing could be the answer to your no-car problem.
Noteworthy aspects about in-house financing:
- Used cars only
- Down payment required, possibly up to 20% of the vehicle’s selling price
- A credit check may not be required
- BHPH loans aren’t typically reported to the credit bureaus
- Dealers don’t issue private-party loans
- Interest rates are generally higher at these locations
The in-house financing process:
First, locate a BHPH or tote the note dealer. You can either choose a vehicle then apply for financing, or talk to the dealer about your auto financing options. The dealership typically verifies your employment, monthly income, and identity, and if you’re approved, you complete the car buying paperwork and financing documents with the dealer. Many borrowers that shop with BHPH dealers can choose a car, get financing, and take delivery all on the same day.
Which Special Financing Option Is for You?
Choosing the right special financing option for your situation is up to you! However, we can offer some pointers.
If credit repair is a priority for you, then a subprime lender may be a better choice. These lenders almost always report their auto loans and your timely payments to the credit bureaus. If a loan isn’t reported, your payments don’t do anything to improve your credit score. That being said, if you choose an auto lender that doesn’t check your credit reports, then it isn’t likely they’re going to report the loan, either.
Another thing to consider is your current credit situation. While subprime lenders can work with many different credit circumstances, they can’t help every borrower in every situation. For example, subprime lenders don’t approve loans for borrowers with a repossession on their credit reports that’s less than a year old. That being said, if you want to try for a car loan with a subprime lender, then it may be worth it to apply to see if they can help before you head to a BHPH dealership. Typically, BHPH dealers are considered a last-resort lending option for bad credit borrowers.
We’ve Got Bad Credit Connections!
At Auto Credit Express, we know a thing or two about special financing. We’ve created a coast-to-coast network of special finance dealerships, and we want to connect you to one in your local area.
Instead of driving all over town hoping to run into a dealer that can assist with credit challenges, complete our free auto loan request form and we’ll do the looking for you. There’s never a fee or obligation to get matched to a dealership, so get started now!