Second Chance Auto Loan or "Guaranteed Financing"
Second chance loans, also known as bad credit auto loans or subprime loans can be separated into two categories – dealer financed loans and bank financed loans.
Dealer financed loans, known as "buy here pay here" or "tote the note", are loans in which the borrower makes the payment directly to the car dealer. The typical car at a "buy here pay here" lot is an older, higher mileage used car. These dealers rarely report your payment history to the credit bureaus. It is this type of loan that you will encounter in the "guaranteed financing" commercials. The dealer can "guarantee" financing because the down payment will be unrealistically high in relationship to the value of the car.
Most bank financed subprime loans are made through dealers. This is called indirect lending. While you buy the car through a dealer, you make your payments to the bank. Since these banks realize that you are more apt to make payments on a reliable vehicle, cars sold under this type of program are generally newer, lower mileage used cars. Many of these banks will even finance new cars.
As an informed consumer, there are a number of things you can do if you find yourself needing one of these loans:
- Know what is in your credit file as well as your credit score.
- The subprime buying process is different from the standard buying process. The bank looks at your income and your debts and budgets you for a monthly payment.
- Research insurance prices on comparable cars. Rates can vary dramatically between different makes and models.
- Once you settle on a car, have it inspected by an ASE Certified Master Mechanic.
Finally, remember to be realistic in your expectations. You are not looking for your dream car. Wait until your credit is repaired for that one. For the time being, look for good, reliable, transportation. Pick a car that has the lowest monthly payment possible for the shortest term. The shorter the term, the less time you will spend in negative equity land, and the sooner you will be able to either re-finance or get into a loan with a lower interest rate.
We are here to help you with financing questions and provide fast online quotes. While many auto dealers do not even offer bad credit loans, our network of affiliated dealers specializes in second chance auto loans for people with credit problems. Remember, we want you "on the road" to better credit!