It's easy to get lost in facts and figures if you're not used to dealing with things like car loans on a regular basis. You don't have to stay in the dark about who's financing your auto loan if you're working with a third-party lender, though! Here's what to look out for.
Indirect Car Loans and Third-Party Lenders
When you get your financing right from the dealership where you're choosing your car, you may be getting an indirect loan through a third-party lender. Dealerships are often signed up with multiple lenders for many kinds of consumer situations, but not all dealers work with lenders that can finance in every situation.
Subprime lenders finance borrowers with less than perfect credit. When you're approved through a special finance dealership you're typically sent a welcome letter which should include important information about your loan. This info usually includes who your auto lender (or servicer) is; where and how you can make payments; details about late payments, penalties, and fees; and who to contact in the event you can't make a payment.
If you're a bad credit borrower, you have a better chance at a successful car loan by working with a lender that can handle unique credit situations. When you apply for a bad credit auto loan your application is sent to one or more lenders, and you work with the special finance manager at the dealership on their behalf.
If you're unsure who your lender is, or haven't received any information from them, a good first step is to contact the special finance department at the dealership.
Types of Auto Lenders
Subprime lenders are just one option if you're struggling with credit challenges, or if you're new to the world of credit. Most often, the type of lender you can work with depends on your credit situation, and the lower your credit score is, the fewer lenders you may have to choose from.
Here are the alternatives to subprime lenders, depending on your credit situation:
Direct auto loans are typically reserved for borrowers with good credit scores, around 660 or higher. However, if you've been with your credit union a long time and a member in good standing, it may be worth applying even if your credit isn't stellar. Credit unions tend to offer loans to a wider range of clients, but you typically need to be a member to reap these benefits.
These loans are what people usually think of when they think of a traditional loan or a pre-qualification. You work directly with these lenders and the bank, credit union, or online lender you're using is your financier as well as the lienholder on your vehicle title. If you get pre-approved through one of these lenders, you can take your loan to any dealership or private seller and shop like a cash buyer.
Also referred to as buy here pay here car (BHPH) lots, or tote the note dealers, in-house financing is a go-to for people whose credit score falls below the threshold even for subprime lenders. Here, the dealer is your auto lender.
These dealers are famously known for skipping the credit check altogether. In most cases, you can finance a vehicle as long as you have the money to put down and can prove you make enough to meet your payments. Be aware that these car lots only carry used vehicles, and you can typically expect a higher than average interest rate and down payment requirement.
TCC Tip: If you're not sure what type of lender is best for your current situation, or you're looking to get out of your car loan, it's important to know where your credit stands first. Right now you can take advantage of free access to your credit reports by visiting www.annualcreditreport.com.
Ready to Find Your Next Car Loan?
If you're on the prowl for another auto loan but aren't sure where to start, we've got you covered right here at The Car Connection! We've been connecting credit-challenged consumers and new borrowers to opportunities for the car loans they need for over two decades, and we want to help you, too. Get started toward your next auto loan by filling out our fast, free, no-obligation car loan request form and we'll get started finding a local special finance dealership for you.