Excellent question! The answer is no, not all auto lenders are the same. There are different types of lenders that you should know about if you are in need of a car loan. Your credit generally determines which type of lender is best for you.
Types of auto lenders
When you need an auto loan, you can either try to get pre-approved from a direct lender or go through an indirect lender. These lenders have different conditions to qualify for a loan. Let’s take a look at them:
Direct lenders are lenders you can apply with directly, such as banks and credit unions. You can apply by sitting face to face with a loan officer or by completing a loan application on the lender’s website. The type of loan you qualify for and the offers available to you depend primarily on your credit score. Often, direct lenders only offer loans to people with good credit.
If you don’t have good credit, but still want to get pre-approved, you may have better luck if you’re a member in good standing with a credit union. Sometimes credit unions can be more lenient. In addition, it is often easier to work with them as they usually don’t charge as many fees as banks because they are non-profit. While credit unions may offer low interest rates to people with good credit, they may not be as low as banks can.
Indirect lenders differ from direct lenders in that you cannot sit with them face to face. Instead, you work through a dealer who acts on behalf of the lender. In these types of lending situations, your request may be sent to a bank, finance company, or captive lender owned by a specific automaker.
The right car lender for your credit situation
Most auto loans are based on credit. Lenders typically review both your FICO credit score and your credit reports to determine if you qualify for a car loan. Not all lenders work with the same range of credit scores.
A group of lenders, called risk lenders, work specifically with people who have credit difficulties. Subprime lenders can be independent financial companies or captive lenders, but all subprime lenders are indirect and you can only work with them through special finance brokers.
When you’re dealing with bad credit, subprime lenders know you always need a way to finance yourself. It may be a longer process with more requirements, but in the end, getting a vehicle through a subprime lender can be your ticket to improving credit.
Because these lenders know that your credit score alone is not enough to qualify you for most auto loans, they look beyond your credit score to other factors, such as your income and your job.
Subprime loan requirements
There are conditions that you must meet to get a bad credit car loan. These factors help the lender assess your ability, stability, and willingness to successfully complete a car loan.
In order to verify that certain qualifications are met, lenders must see documentation, comprising:
- A valid driver’s license – For identity verification.
- A recent pay stub – For proof of income; it should be computer generated and should generally show cumulative income of at least $ 1,500 to $ 2,000 per month before taxes.
- A current utility bill – For proof of residence; it must be in your name and indicate the address indicated on your auto loan application.
- An up-to-date telephone bill – To prove that you can be reached by the lender if necessary. It must be a landline or a contracted cell phone in your name at the same address.
- A list of personal references – To check the information or contact you if necessary. Typically, five to eight personal references are required, along with names, addresses and phone numbers at home and at work.
You should also know that a down payment is almost always required for a bad credit car loan, but the amount required varies by lender. As a general rule of thumb for subprime lenders is $ 1,000 or 10% of the vehicle’s selling price, whichever is less.
If you need help meeting some of the requirements, you may be able to add a co-signer or co-borrower. Co-signers and co-borrowers help you by “lending” you their good credit and / or income, which can increase your chances of approval and help you get better loan terms.
A third possibility of a car lender
Another possibility exists for auto loans for bad credit, and that is buy here pay here (BHPH) loans. These are loans designed to help people who don’t even have the credit qualify for a subprime loan.
AT buy here pay here dealer, you are working with a dealership who is also a lender, which makes for an easy and unique shopping experience. Plus, you usually don’t have to worry about someone checking your credit score as these types of dealers often don’t look at them.
One of the main differences between BHPH dealers and subprime lenders is that, buying and paying here, dealers don’t rely on so many additional factors to get you a loan. Their main concern is that you have enough disposable income to cover your car loan and that you can make the required down payment.
Unlike subprime lenders who require your income to come from a single source of taxable income, BHPH dealers are concerned about your total monthly income whether it comes from one or more jobs, a W-2 job, or public benefits such as social security or disability. .
Start now with your next car loan!
Now that you know that there are different types of lenders for all types of credit situations, you need to find the right lender for you. If you have bad credit, Auto Express Credit can help.
We work with a nationwide network of special finance dealers who have lenders available to help people with bad credit, no credit, bankruptcy, and even repossession of their credit history. To be matched with a dealer in your area, simply complete our auto loan application form, and we’ll start the process for you!