When you just don’t quite make the cut for traditional auto financing, it may be time to consider alternative lending options for a second chance at getting the car you need.
What Is a Second Chance Car Loan?
Second chance financing is for borrowers who find themselves getting turned down by traditional direct auto lenders. Direct lenders include those from banks and credit unions – where you directly apply with the lender. These financial institutions can carry high credit score requirements, making it hard for someone with credit issues to qualify.
But if you work with the right lenders who assist borrowers in tough credit situations, it could mean a second chance to get the vehicle you need, and possibly get your credit score back on track.
What Are My Lending Options?
There are two main avenues that borrowers can take when they’re looking for a second chance car loan:
- In-house financing: When the dealer is also the lender and there's no need for third-party lenders.
- Indirect financing: Indirect financing is when you never meet with the lender directly, but instead sit down with a finance manager at a dealership, who acts on behalf of the lender.
Whether you’ve gone through bankruptcy, had a past repo, or simply missed one too many payments on other accounts, check out these two options when you’re looking for a second chance at financing.
In-House Financing: The Details
For borrowers with major damage on their credit reports, in-house financing could be the way to go. Dealers that offer in-house financing are known for working with borrowers who’ve gone through dismissed bankruptcies, multiple repossessions, or very recent damage on their credit reports.
Typically, the process of in-house financing is very quick. Borrowers are often able to visit the dealership and drive away with a vehicle on the same day.
Perhaps the biggest bonus to getting an auto loan with in-house financing is that there’s usually no credit check involved in the lending process. When a lender doesn’t review your credit reports, any damage you have there doesn't impact their loan decision. However, there are two sides to every coin.
Dealers that use in-house financing have their fair share of downsides:
- You can expect a higher-than-average interest rate, often in the double digits. Since there’s no credit check, these dealerships tend to charge more in interest.
- Expect to need a large down payment, sometimes around 20% of the car’s selling price.
- Don’t count on credit repair. Some in-house financing dealers don’t report their loans to the credit bureaus, so your on-time payments wouldn’t improve your credit for the next time you need a vehicle. It's a good idea to ask about their reporting practices before starting the process.
While in-house financing has its weaknesses, it can be a great way for borrowers with credit issues who need a car quickly. If these shortcomings are too much for you, then subprime financing could be your solution.
Subprime Financing: The Details
Subprime financing is done through subprime lenders at special finance dealerships, and these lenders specialize in assisting borrowers in many bad credit situations.
While subprime lenders do check your credit score, they look at more than just that three-digit number. They ask about your work and residency history, credit reports, and require a down payment. They also verify your income and generally require your minimum monthly income to be around $1,500 to $2,500 (before taxes).
If you have a stable living and work history, can verify your income, and provide a down payment, then a subprime auto loan could be in your pocket.
The biggest benefit of subprime financing is the opportunity for credit repair. Subprime lenders report their loans to the major credit reporting agencies. With this second chance car loan, your timely payments could be the way you pull yourself out of bad credit.
A downside to subprime financing is that these lenders can be hard to pinpoint – but we can help with that.
Ready for a Second Chance Auto Loan?
Borrowers with credit issues sometimes need a lender that’s willing to give them a second chance at auto financing, but you can’t get a second chance if you can’t find the right lenders! Not sure where to start? Begin with The Car Connection!
We’ve assembled a network of dealers that are signed up with bad credit car lenders, and our connections are all over the country. To get matched to a dealership in your area that has the lending resources you need, fill out our free auto loan request form.