Buying a vehicle is exciting, but knowing where to go for the best deal possible isn’t always easy, especially if your credit is less than perfect. While we recommend that you try to get pre-approved with your bank first, you should also apply with different lenders so you can compare financing deals and pick the best offer.
2 Type of Lenders to Work With
Regardless of your credit situation, it’s important that you understand the two main types of lenders you could apply with:
- Indirect lenders – Indirect lenders are third-party lenders that work through dealerships. These can be subprime lenders that deal with bad credit car buyer, captive lenders, such as GM Financial or Ford Credit, and even some banks and credit unions. You aren’t going to receive a check with an indirect lender. In fact, you aren’t going to see the lender at all. The dealer handles the process on the lender's behalf, and collects the documents they need to approve you for financing.
- Direct lenders – Direct lenders are banks, credit unions, and other online lenders that you can apply with directly. Unlike indirect lenders, you work with the lender face-to-face, hence the “direct” in the name name. The bank or credit union cuts you a check to take to the dealership or private seller if you're approved.
Financing a Car with Bad Credit
Now that you’re aware of the types of lenders you could work with, what if you have bad credit and need a vehicle? You’re not out of luck, but you may find it more difficult to get approved with your bank or credit union if that’s the route you want to go.
Direct lenders base approvals primarily on credit scores. If you don’t have the credit, you likely aren’t getting pre-approved. However, you could still get financing through an indirect lender.
These lenders work a little differently, and although they run credit checks, they consider additional factors for approval such as income and job and residence stability.
Each lender has different requirements, but you can typically be expected to need to provide proof of the following:
- Income – A recent computer-generated pay stub showing year-to-date earnings.
- Residence – A recent utility bill, in your name, showing the address listed on the application.
- Phone – A recent phone bill in your name that can be for either a landline or contract cell phone.
You usually also must make a down payment with a bad credit auto loan. Subprime lenders often require a minimum of $1,000 or 10% of the car’s selling price, whichever is less. You can use trade-in equity, cash, or a combination of both.
The Bottom Line
Whether or not you should finance your next vehicle through your bank or a different lender depends on your credit situation. If your bank pre-approves you, and they offer a great deal, then awesome! If not, you probably need to find a lender that can work with you, and we can point you in the right direction.
At The Car Connection, we work with dealers all over the country that specialize in getting people with bad credit, no credit, or even a bankruptcy financed. You can use our new and used car buying guides to check out models, and when you’re ready, you can complete our auto loan request form and we'll get to work matching you with a local dealership.