Everyone deserves a second chance, so if you’ve got bad credit, you deserve to get yourself a second chance loan. Second chance auto loans are for shoppers who have been turned away by other lending institutions because of a poor credit history. Second chance loans are usually separated into two types; dealer-financed and bank-financed loans.
In a dealer-financed loan, monthly payments are made to the dealership that sold the vehicle, which is why some dealer-financed loans are called direct lending, “buy here pay here”, or “tote the note” loans. Most of the time, these types of loans are given to people purchasing an early model (older) vehicle with high mileage on the odometer. “Buy here pay here” car dealerships ask for a high down payment relative to the car’s value in order to guarantee financing for their bad credit loans. However, you may be able to get a lower interest rate through a dealership-financed loan.
Bank-financed loans are still made through a dealership, but monthly payments are made to a bank or other lending source that holds the car’s title; these types of loans are also called indirect lending. Most lending companies realize that consumers are more likely to make their monthly payments on time for newer, more reliable vehicles, so these lenders will generally finance late-model used vehicles with low mileage, or even new cars.
To help you decide which type of loan is right for you, keep these facts and tips in mind:
- Know your credit score and the information in your credit profile
- Buying a car with a sub-prime loan is different than buying a car with a traditional loan, your income and current debts will be perused by your lender and you will be budgeted for a monthly payment
- Research insurance prices on comparable cars in the price-range you’re approved for, insurance rates can differ greatly between various makes and models.
- If you’re buying a used vehicle, have it inspected by an ASE certified mechanic before buying