Differences Between Special Financing and Traditional Auto Loans

Differences Between Special Financing and Traditional Auto Loans

Your credit score can determine how you go about getting your next auto loan, but it doesn’t always dictate whether or not you can get a car loan approval. Special financing is for borrowers with bad credit, but it’s still not an option at every dealership.

Traditional Lenders vs. Bad Credit Lenders

Differences Between Special Financing and Traditional Auto LoansThe main difference between special financing and traditional financing is that special financing involves subprime lenders, and they cater to borrowers with less than perfect credit. These lenders work with the special financing departments of some dealers, and this is where the term comes from.

Traditional financing is typically thought of as going through a direct lender from a bank or credit union, or even a captive lender (the lending arm of an automaker). Traditional lenders usually have stricter requirements when it comes to credit scores, preferring good credit borrowers.

If you have a good credit score, you can usually go to any lender you’d like and work toward getting your next car loan. However, with a credit score lower than 660, you may find getting approved for an auto loan more difficult.

This is when special financing comes into play. It’s for borrowers who can’t get approved by traditional car lenders for whatever reason, such as a lower credit score or a rocky credit history.

Why Choose Special Financing

Special financing isn’t for every borrower, but if you’re struggling to find a lender that can work with your situation, it may be for you. For example, special financing is typically for borrowers in one or more of these situations:

  • Have had a repossession (that’s over a year old)
  • Have been recently discharged from a bankruptcy
  • Have no credit history
  • Have a lower credit score due to missed or late payments in the past

Special financing is typically for borrowers who want a second chance in auto financing. Most traditional lenders won’t consider a borrower in the above situations. While your credit score and credit history are both considered during the approval process, it isn’t the main focus.

Qualifying for a Special Finance Car Loan

While subprime lenders may consider you for financing with a lower credit score, there are still requirements that need to be met before you can get a car loan approval.

The basic requirements for a subprime auto loan are:

  • Income – Minimum monthly income of around $1,500 to $2,500, gross. Proven with computer-generated check stubs that show year-to-date income.
  • Down payment – A subprime lender almost always requires a down payment, usually of at least $1,000 or 10% of the vehicle’s selling price (sometimes whichever is less).
  • Working phone – Lenders need to be able to contact you, so you need a working landline or cell phone, proven with a recent phone bill in your name.
  • Work history – Subprime lenders like to see stability. They generally require that you’ve held the same job for at least six months to one year, and maybe even that you have a good work history over the course of three years.
  • Residency – Similar to work history, living in the same area for an extended period of time shows stability. Proving your residency can be done with either a recent utility bill or bank statements in your name.
  • Driver’s license – Must be valid, meaning not revoked, suspended, or expired. Used to verify identity, and so you can drive the car off the lot.
  • Personal references – If you’ve been approved for financing, the subprime lender usually asks for a list of five to eight personal references with contact information (address, phone, email, etc.). Can be anyone as long as they don’t share your address.

Your lender may require more documents depending on your situation, but you should expect to need these items at the very least. Gathering these documents is often half the battle of getting financed!

Finding a Special Finance Dealership

Ready to look for a dealership with a special finance department? Finding one can be a little difficult since they don’t tend to stick out from traditional finance departments – but we want to help!

Here at The Car Connection, we connect bad credit borrowers to dealers that work with subprime lenders. To get started, simply fill out our free auto loan request form, and we’ll look for a dealership in your area right away!


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