If you’ve tried other avenues of auto financing without any luck, then special financing could be the next path for you.
What Is a Special Finance Car Loan?
If a standard car loan hasn’t quite worked out, then try applying with a bad credit auto lender. Many traditional car lenders have high credit score requirements, and if your credit is less than stellar, it could mean a denial. That’s where special financing can help!
Special financing is an umbrella term for auto lenders that can assist bad credit borrowers. Subprime lenders that are signed up with special finance dealerships consider more than your credit score for a car loan approval. There are also dealers that don’t review your credit reports at all, called in-house financing dealerships.
Unlike traditional auto financing, your credit score isn’t the largest factor in determining your eligibility for a car loan with special financing. In fact, these lenders examine many more parts of your situation than traditional lenders.
Special financing isn’t for everyone, but it’s for a lot of borrowers in tough credit situations. If you’re in one or more of these situations, then special financing may be the path for you:
- You’ve had a vehicle repossession. Borrowers who’ve had a car repossessed can be turned down can traditional auto lenders, and a repo can drastically lower your credit score.
- You’ve gone through a bankruptcy. A personal bankruptcy can really hurt your credit score, and some traditional car lenders may not be willing to approve a borrower with one on their credit reports – discharged or not.
- You have a thin credit file. If you have little or no credit history, then you’re likely to be told you have a thin file. With a thin credit history, traditional auto lenders can be wary of approving you for vehicle financing because it often means a lower credit score and little proof that you can handle repaying borrowed credit well.
- You have habitual bad credit. Habitual bad credit happens when you have a history of missed, late, or inconsistent payments on your past credit. Late or missed payments can create a low credit score, and make qualifying for new credit difficult.
- You have situational bad credit. Situational bad credit is when a life event causes a lower credit score, such as a job loss, medical emergency, or another financial difficulty. Even if you’ve had good credit for a long time, one bad event can lead to a poor credit score, which in turn makes getting a car loan tough.
While all of the above situations can mean getting turned away by traditional auto lenders, subprime and in-house financiers are equipped to deal with all of these situations and more. By looking at your income, down payment, work history, and other factors, they use more to determine your ability to take on a car loan.
Subprime Auto Lenders
Subprime lenders are third-party lenders signed up with special finance dealerships, and they’re often a go-to lending resource for bad credit borrowers that want a chance for credit repair. Subprime lenders report their loans to the credit bureaus, so this type of loan can get you the vehicle you need and help you repair your credit at the same time.
There are three big components that subprime lenders examine to see if you’re ready for an auto loan: ability, stability, and willingness to pay.
- Ability refers to your income and available income. This means you must prove you have a steady income with enough money left over each month to pay for the car and other vehicle expenses, such as car insurance.
- Stability refers to how stable your financial and living situation is. As a good rule of thumb, the longer you’ve held the same job or been in the same line of work, the better your chances of landing an auto loan approval. Stability also takes into account your living situation. Subprime lenders prefer borrowers that have lived at the same residence for around one year.
- Willingness to pay refers to a down payment. Borrowers that put money down on a car loan have been shown to have better success in completing the loan. Down payments also lower your monthly payment and interest charges, which leads to saving money on the auto loan. Having a down payment is another way of proving you’re stable enough to save up for a vehicle and shows you’re willing to invest in your own success.
Subprime lenders are able to assist many different tough credit circumstances, and with on-time payments on a subprime car loan, you could turn your credit around for the better.
In-House Financing Dealerships
In-house financing falls under special financing because these are both dealers and lenders that specialize in assisting borrowers with poor credit. They're also known as buy here pay here (BHPH) dealerships, or tote the note dealerships.
Many of these dealers don’t check your credit reports at all. When there isn’t a credit check, you can expect a large down payment requirement to make up for it. They also verify your income source.
While the lack of a credit report pull is tempting, keep in mind that lenders that don’t review your credit reports for an approval may not report your on-time payments. If your timely payments aren't reported to the major credit bureaus, then your car loan doesn’t improve your credit score.
If you need a vehicle fast and you aren’t concerned about bettering your credit history, then a BHPH dealership could be the path for you.
Special Financing Car Dealerships
Knowing what options are available to you when you have poor credit is a great first step in getting an auto loan. However, finding a lender that can assist with poor credit is another obstacle, but we want to help!
Here at The Car Connection, we’ve created a nationwide network of dealerships, and our connections include special finance and in-house financing dealers. We want to connect you to a dealership in your local area for free! Get started by filling out our zero-obligation car loan request form, and we’ll get right to work for you.