Auto Net Financial News

In order to understand the bad credit car loan process consumers should be aware of the three different types of lenders that deal in credit challenged applicants with low FICO scores.

Our job

At Auto Net 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. In the process, we have helped many of our customers raise their credit scores and reestablish their car credit by financing a vehicle with a bad credit auto loan. We also do our best to educate these consumers on the bad credit car loan process as well as the different types of lenders that are involved with these types of transactions.

One of the things that we’ve learned through the years is that the key to a successful bad credit auto loan is focusing on the basics. This means that in order to rebuild their credit, bad credit car loan customer need to understand how the subprime auto loan process works, which includes an understanding of the different kinds of lenders that are currently in business making subprime auto loans.

Direct bad credit lending

Direct lenders are, as the name implies, banks and other lending institutions that lend money directly to the consumer. When applicants are approved for a loan from a direct lender, they can shop for a car like a cash buyer. It also means they need not be concerned about whether or not the dealer can get them financed.

One of the disadvantages of direct lenders, however, is that most have stricter underwriting guidelines. In other words, they don’t do a very good job of approving applicants with bad credit. And although there have been a few bad credit auto loan lenders that, in the past, have loaned money directly to applicants, most of those lenders have left the market. Direct lenders may finance the following loan types:

Private party auto loans – This are loans that will finance the purchase of a car from a private party. The few direct lenders that deal with bad credit car loans do not offer this option.

Franchised dealership purchase financing – These are loans that will finance the purchase of a vehicle from a dealer that holds a new car franchise (such as Chevrolet, Ford or Honda). Any direct lenders that still deal with bad credit car loans will offer this option.

Independent dealership purchase financing – These are loans that will finance the purchase of a vehicle from an independent dealer that has no ties to a new car franchise. Only a few direct lenders that still deal with bad credit auto loans will offer this option.

Car loan refinance – Some direct lenders will offer this finance option

Indirect bad credit lending

Most direct lenders will also offer indirect lending through automobile dealers. When this occurs, the lender will often offer the dealership slightly better “buy rates” than they offer their direct customers. The dealer can then choose to offer the customer this rate, or mark it up in order to earn additional profit.

Indirect lending is the most common type of lending when it comes to consumers with poor credit. The indirect lenders that are available to consumers can vary widely from dealership to dealership, which means that it is very important for bad credit car loan applicants to choose the right dealership before they begin the buying process.

Most bad credit lenders choose the indirect lending model for a couple of reasons:

•    The lender has a reasonable assurance from the dealer that the vehicle being financed is in good repair

•    In most states the lender is able, if necessary, to charge the dealer a fee when the lender purchases a finance contract from the dealer

A much higher number of indirect bad credit auto loan lenders deal with franchised dealers as well as large mega-sized used car franchises than with the smaller neighborhood independent used car lots. Common examples of indirect lenders include Ford Motor Credit, GMAC, Toyota Financial, and American Honda Financial Services (it should be noted that these are examples of indirect lenders, not necessarily lenders that deal with bad credit car loans).

Buy here pay here lenders

Also called “in-house” or “tote the note” lenders, this category consists of a number of franchised dealers as well as a larger number of independent car lots that lend money directly to the consumer. Unlike conventional lenders that normally collect payments only on a monthly basis, these lenders often insist on bi-weekly or even weekly repayment terms. Many of these dealers also use a third party to process the loans and collect the payments.

Dealers offering this type of financing may also offer no credit check auto loans. If consumers can verify that they have a stable job and can afford a car payment, many of these dealers may lend them the money to buy one of their own vehicles in inventory without checking the applicant’s credit report or verifying their credit score.

As we see it

The type of lender that consumers will deal with if they have bad credit depends upon a number of factors including their credit score and where they choose to purchase a car.

One thing we ask consumers to remember is that Auto Net Financial is in the business of helping consumers with bad credit find a dealer that can get them financed so that they can begin to reestablish their auto credit and improve their FICO scores. These affiliate dealers are knowledgeable and treat all their customers, regardless of their credit background, with dignity and respect.

For more information on the bad credit auto loan process, please visit our web site at www.autonetfinancial.com.