If you’re considering getting your next auto loan through a bank, there are some benefits to working with a large financial institution. But if your credit score isn’t so great, it may not be feasible right now.
Banks and Direct Auto Lenders
Banks are direct lenders. You can head to the bank, apply with a lender in person, get a check for your pre-approval amount, and head to any dealership or private seller you’d like. Banks can offer low interest rates to qualified borrowers, and about 31% of all car loans are from banks, according to Experian’s data from the third quarter of 2020.
If you’re a member of a bank, your accounts with them are in good standing, and your credit reports are in good shape, then you could have a good shot at getting approved for an auto loan.
There are a few notable benefits of getting a car loan from a bank:
- They’re established – Most banks are established institutions, and they’re not very likely to “pull a fast one” on you. Many are respected and heavily regulated, and most have online payment options since they’re typically large.
- They offer pre-approvals – Direct auto lenders offer pre-approvals, which allow you to shop like a cash buyer if you qualify. The bank can hand you a check that outlines your spending limit, or they can send the check directly to the dealer for the vehicle. Once you have a pre-approval, you have many options as to where you can finance your next car.
Banks and other direct auto lenders are a very popular way to finance a vehicle. However, if your credit score is 660 or lower, you’re considered a nonprime borrower, according to Experian. With a score in this area, it can be tough to qualify for a direct car loan.
Banks, credit unions, and the captive lenders of automakers tend to prefer borrowers with higher credit scores. There are lenders signed up with special finance dealerships, though, that assist with credit challenges.
Subprime Car Loan Benefits
Subprime lenders are indirect lenders. Unlike a bank, to apply with a subprime lender, you must locate a special finance dealer that’s signed up with these third-party lenders. The special finance manager at the dealership is the one that walks you through the financing process, handles your documents, and acts as the middleman between you and the subprime lender.
These lenders specialize in assisting borrowers with less than perfect credit. They consider more than just your credit score, and look at the many factors of your financial stability.
Some benefits of working with a subprime lender when you have poor credit are:
- Opportunity for credit repair – Subprime lenders report their car loans to the credit bureaus, so your on-time payments contribute to your credit score. If you qualify for subprime financing and handle the loan well, you can see an improvement in your credit score.
- Unique credit situations – Special finance dealers often assist borrowers in all sorts of tough credit situations, such as bankruptcy, repossession, and poor credit. Your credit reports are reviewed for subprime financing, but they aren’t the main determining factor in your eligibility for an auto loan approval.
While banks can offer some flexibility in where you shop for a vehicle, subprime lenders consider more than just your credit rating. Even if you meet the income requirements for a direct car loan from a bank, a poor credit score could be reason enough for a denial.
Ready to Find a Dealership?
Banks can be easy to find – finding a special finance dealership can be a little difficult if you don’t know where to start. Fortunately, we’ve got connections here at The Car Connection. We’ve cultivated a nationwide network of dealers over the last 20 years, and we want to look for a dealership in your local area that’s signed up with subprime lenders.
Start the process by filling out our auto loan request form. There’s never an obligation, and our form is completely secure and free. Get started now!