While a preapproved bad credit car loan might sound great in theory the reality of the bad credit car loan process is much different
What we do
At AutoNet Financial, we are in the business of helping our customers reestablish their credit by financing either a new or a newer pre-owned vehicle with a bad credit car loan through high risk lenders. As a borrower, one of the things consumers can do to make the process go more smoothly is to educate themselves about the subprime car loan process.
In particular, bad credit car loan shoppers need to be aware of the fact that there are individuals and companies out there that will do anything in order to entice you to fill out a credit application, including the promise of a pre-approval for a vehicle loan. Today we will address that particular issue.
Types of lenders
There are three basic types of automotive lenders in today’s marketplace: direct lenders, indirect lenders and “buy here pay here” lenders. Each has its own particular advantages and disadvantages.
In house financing
Sometimes called “buy here pay here” or “tote the note” lenders, these lenders are also the dealer. Unlike direct and indirect lenders, these dealers usually don’t care what your FICO score is. As long as you can prove that you have a job that meets their income requirements and you have a fairly stable residence history, you’ll qualify for a loan – albeit at a high interest rate with a fairly large down payment requirement. Most buy here pay here dealers do not report your payment history to the credit bureaus.
Indirect lenders
Indirect lenders include the captive finance companies of the auto manufacturers (such as Ford Motor Credit and American Honda Finance) as well as various banks and other financial institutions. Although some of these lenders also do direct lending, the majority only loan money through car dealers. In the case of these indirect lenders, a loan application can only be made through the dealer’s finance department – you can get an approval before you visit the dealer. Indirect lenders always report your payment history to the credit bureaus.
Direct lenders
Direct auto lenders include banks and credit unions. The word “direct” in the title means that these institutions work directly with the consumer. In the context of getting a pre approved car loan, these are the lenders you will deal with. Instead of going to the car dealer first, you visit the lender (either in person or online), fill out the credit application then wait for an approval.
If you’re approved, the lender will let you know the maximum amount and the maximum length of the loan, as well as the maximum dollar amount of the loan. Armed with this information, you can subsequently shop for a car and haggle with the dealer over the price, knowing just how much you can spend. These lenders always report your payment history to the credit bureaus (Experian, Equifax, TransUnion).
Bad credit car loan preapprovals
In order to get preapproved for a bad credit car loan, then, you would need to do it through a direct lender. Unfortunately, most bad credit lenders fall into the “indirect” category. There are a number of reasons this is the case. Bad credit auto loans require a great deal of physical verification including those of employment and residence. It’s much easier (and less expensive) for these lenders to require that their dealers do the bulk of this work – which is also a reason many dealers are reluctant to help customers with bad credit.
If this is the case, then, why are there ads and stories on the internet about preapproved bad credit car loans? The fact is, most of these stories will link you to a credit application that does not belong to a lender. When you fill out this application, it will be sent to a dealer who will then send it to a bank. The “preapproval” will come in the form of an email or call from a dealer asking for additional information. The “preapproval” is actually a come-on, designed to trick you into thinking you already have a loan, which is not the case.
Our question to you is, “Why would you do this when there are web sites out there that are going to be truthful to you from the start?”
AutoNet Financial
At AutoNet Financial, we want you to make the right choices when it comes to a bad credit car loan buying decision. That includes finding the right dealer and the right car to help you reestablish your auto credit and improve your credit score.
For more information on the bad credit auto loan process, please visit our web site at www.autonetfinancial.com.
