With so many dealerships, how do you know which one can work with bankruptcy? Turns out, there’s a name for dealers that are signed up with lenders that can: special finance dealerships.
What’s a Special Finance Dealership?
Going through bankruptcy can cause damage to your credit reports and lower your credit score, which can make it difficult to bounce back. Many traditional auto lenders have higher credit score requirements that can be hard for some borrowers to meet. That’s where subprime lenders come in and fill the gap.
Dealers that have bankruptcy car loan resources are called special finance dealerships. They assist bankruptcy borrowers by being signed up with subprime lenders that are often able to help. These are usually the same dealers that work with bad credit and no credit borrowers.
It’s important to note that the dealerships themselves aren't necessarily concerned with your credit reports – but the lenders that they're signed up with are. The lender looks at your credit reports to determine your ability to pay for a vehicle.
Special financing dealers are unique because they’re signed up with lenders that look at more than just your credit score. They’re experts in assisting borrowers with unique credit situations, including bankruptcies. Subprime lenders take a look at your income, living stability, and financial circumstances as a whole, as well as ask for a down payment.
Some traditional lenders may take one look at a bankruptcy on your credit reports and turn you away. This isn’t the case with subprime lenders at special financing dealerships.
How Special Financing Works
Once you find a dealer, you meet with the special finance manager who acts on the subprime lender’s behalf. The lenders are third-party, so you never meet with them in person. The special finance manager works you through the whole process, verifies your documents, and sends them off to one or more subprime lenders that they're signed up with to see if you qualify for financing.
When it comes to the things you need to apply for a subprime auto loan, your documents can vary, but there are basic items you can prepare. If you’re recently discharged from bankruptcy and the discharge hasn’t appeared on your credit reports, you may have to bring a copy of your discharge papers to show that you’re in the clear for car financing.
Other items you can prepare for your trip to the dealership include:
- Computer-generated check stubs – Most subprime lenders require that you have a minimum monthly income of around $1,500 to $2,500 before taxes, from a single source.
- Proof of residency – To prove your residency, expect to bring a recent utility bill in your name with your correct address. A bank statement could also meet this requirement.
- Working phone – Subprime lenders need to be able to contact you, so you need proof that you have a working landline or cell phone with a recent phone bill in your name. Prepaid phones aren’t accepted.
- Driver’s license – You need a valid driver’s license to test drive and drive the vehicle off the lot, and it also proves your identity. Your license can’t be revoked, suspended, or expired.
- Personal references – Subprime lenders generally ask for a list of five to eight personal references. These contacts can be friends, family members, or even coworkers. They just can’t be anyone that lives with you.
- Down payment – To get into a bankruptcy auto loan, you need a down payment to show you’ve got skin in the game. Most subprime lenders require at least $1,000 or 10% of the car’s selling price (sometimes whichever is less).
If you meet all the requirements and your documents are verified, then the subprime lender sends out what’s called a payment call. This outlines what your maximum monthly payment can be based on what you qualify for. From there, you choose a vehicle with the dealer from their lot and finalize the rest of the car buying paperwork.
Subprime Car Loans and Bankruptcy Borrowers
Not only can subprime auto lenders help bankruptcy borrowers get back on the road, they also report their loans to the credit bureaus. This is important to the aspect of repairing your credit after bankruptcy because a loan that isn’t reported can’t assist you in bouncing back from the damage of a lower credit score.
Your timely payments on the car loan are the most important aspect of credit repair. Payment history makes up the biggest chunk of your credit score: 35%. By making all of your monthly payments on time, and keeping all other aspects of your credit score in check, you can rebuild your credit.
Repairing your credit after bankruptcy can be difficult, but the work is worth it. A better credit score can mean qualifying for better deals, qualifying for lower interest rates, and, overall, making it a little easier to get approved for the things you need, like a vehicle.
Finding a Dealership That Works With Bankruptcy
Not every dealership is signed up with subprime lenders, and these dealers can be hard to find in the crowd. At Auto Credit Express, we’ve created an easier way to find the resources that bankruptcy borrowers need to get an auto loan.
We’ve cultivated a network of dealerships that are teamed up with subprime lenders across the whole country, and we want to find one in your local area. To get started, fill out our free car loan request form. There's no obligation, so let us save you the hassle and look for one with the bankruptcy resources you need.