When you are looking for a car and have bad credit, it can be difficult to know where to go. It's important that you get the loan you need from the right lender, and these lenders can't be found at every dealership.
The Importance of Special Finance Dealerships
There are many types of auto lenders out there – both direct and indirect. Some of these lenders work with bad credit borrowers as well as good credit borrowers, but not all of them. One group of indirect lenders, called subprime lenders, only work through special finance dealers, and it's important that these lenders are available for those borrowers with bad credit that need them.
When you have bad credit, you need a lender that knows that a borrower's credit score isn't the only thing that should determine whether or not they qualify for a loan – that's what subprime lenders do. These lenders look at additional information from a borrower's credit reports, as well as outside factors, that show them a borrower's ability, stability, and willingness to successfully complete a car loan.
Because these lenders don't work directly with consumers, the special finance dealerships are an important part of the bad credit auto loan process. The trouble is, most of these dealers don't say "special finance" anywhere in their name. So, how do you determine which dealerships you should visit?
The Special Finance Car Loan Process
Borrowers with good credit typically pick out a vehicle, find a dealer that has it, and then go there to finance it. When you're a bad credit borrower, the process works almost the opposite of this – the car choice comes last.
This means these borrowers need to find a special finance dealership and secure financing before you can choose a vehicle. Let's take a look at the process step by step:
- The first step in any auto loan should always be to know where your credit stands. If you don't know your credit score or what's on your credit reports, you could be very surprised when you try to get a loan. Even though you might like surprises, it's better to be prepared ahead of time. This way, you can negotiate your best car loan – something you can't do if you don't know what your credit looks like. If you find a low credit score or many negative marks on your credit reports, then you're going to need a subprime lender.
- You need to put together a number of documents; subprime lenders require proof of what’s on your loan application. The particulars vary by lender, but you're typically required to bring in various documents such as proof of income and residency, proof of a working telephone, a valid driver's license or state I.D., and a list of five to eight personal references.
- Know your budget. Subprime lenders don't want you to go broke financing a vehicle, which is why they set limitations on how much you can spend on an auto loan payment compared to your available income. These two calculations are the payment to income (PTI) and debt to income (DTI) ratio, and they're simple to do yourself. You can find out how to calculate the DTI and PTI ratio here.
- Save for a down payment, or get your trade-in ready. As a bad credit borrower, you're required to provide a down payment for car financing. This helps lenders see that you're serious enough about a loan to invest your own money in it. Typically, subprime lenders require at least $1,000 or 10% of a vehicle's selling price, whichever is less. You can make a down payment in a few ways: cash, trade-in equity, or a combination of both. Rarely, you might be able to put part of a down payment on a credit card, but this isn't typically allowed or wise as a bad credit borrower, as you end up paying more due to high credit card interest rates.
- Work with the finance manager at the special finance dealership. The finance manager sends your application and information to their lender. If you're approved, the lender makes a "payment call" to the dealer’s finance manager. This call lets them know your maximum monthly payment, and which loan program you qualify for. The loan program you're given determines your interest rate, loan term, and the vehicles you qualify for. The finance manager goes over this with you, and then you can choose a car from their lot that fits these criteria.
Wondering why the steps didn't include how to find the special finance dealership you're looking for? This is because you're not on your own for that one. We can help.
Finding a Special Finance Dealership Near You
At The Car Connection, we work with a nationwide network of special finance dealers that have the lending resources bad credit borrowers need. When you don't know where to turn to find a dealership for your next vehicle, we want to help.
Simply fill out our secure, no-obligation auto loan request form, and we'll get to work connecting you to a local dealer. But that's not all. You can also research your estimated car loan payment, and read up on new and used vehicles to see which ones meet your needs.
Don't hesitate any longer, let us help guide you toward your next auto loan now!