Trying to be approved for a car loan while having a history of credit problems can be a challenge. Most car dealerships will want to pull a person’s credit report and consider the person’s debt-to-income ratio. It can be difficult for a bank to approve a loan if someone has a history of late or missed payments, too much outstanding debt, or bankruptcies and liens on his or her credit report. Besides paying cash for a vehicle, there are other alternatives to traditional financing. Obtaining an indirect loan from a company like Consumer Portfolio Services can be a viable alternative for those with a blemished or limited credit history.
What is Indirect Financing?
Indirect financing options are usually serviced by companies that buy installment contracts from car dealerships. These contracts are secured by the vehicle. While installment contracts are usually secured by used vehicles, there are some cases where the contracts are secured by new vehicles. Indirect financing companies specifically work with individuals that have problematic or limited credit histories. Since the loans are secured, the company can recover the loan’s outstanding balance through repossession of the vehicle if the person defaults on his or her payments.
Advantages of Indirect Financing
Although this type of financing may come with additional stipulations and could cost more, it is a solid alternative if a person is trying to establish or repair his or her credit. By making on-time payments, an individual’s credit score and history can improve fairly quickly. A person can also afford a car by making monthly payments instead of having to save up to pay for a vehicle outright. As long as payments are made on-time and a person does not default on the loan, this type of financing can help a person obtain unsecured financing in the future.
Purchasing a vehicle can be stressful if one is not sure if it will be affordable. A questionable credit history can make the process even more overwhelming. Knowing that there are sound alternatives for those with limited or poor credit history means that purchasing a used or new vehicle is within reach.