The Private auto lenders who finance private party auto loans tend to be direct lenders. As a rule, most direct lenders usually only approve loans to borrowers with good credit, making it hard for car buyers with bad credit to land an approval.
Borrowers with poor credit who need an auto loan typically need financing through a subprime lender. These lenders are willing to help bad credit car buyers, but they're normally indirect lenders that you can't approach directly. Instead, they work through licensed car dealerships that help them in two main ways:
Verify Borrower Information – The dealer works as the lender's agent. Dealers verify all of a borrower's information listed on their application. By double checking income, job, and residence details, lenders ensure a borrower can afford a loan, which helps offset the extra risk associated with bad credit. Dealers also collect the documents lenders require that serve as proof of the borrower's information.
Verify Vehicle Information – Dealers also help lenders by making sure all information about the vehicle being financed is accurate. This includes its year, make, model, mileage, and equipment. Subprime lenders won't finance cars with branded, salvage, or rebuilt titles, so a dealer also makes sure the title is clean.
Subprime lenders won't finance private party auto loans, largely because private sales are missing these two critical elements. The dealers act as a third party to reduce risk, making them an important part of the bad credit auto loan process.
