2008 was a really bad year for automobile sales. The lower class’ and lower-middle class’ fell out of the buying market, and dealers, too, felt the pain.
Thankfully, a lot has changed during the past few years and sales are starting to rebound. Reuters reported the auto industry sales rose 8 percent from 2013. According to the research firm Autodata Corp., the industry delivered 1.39 million car units in April.
The increase in sales momentum is a promising sign for car dealers and manufacturers, but low income consumers and those with credit problems have reasons to worry. Here’s why:
When you apply for an auto loan, you would need a minimum 500 to 589 FICO score to secure the loan for car financing. But what happens if you don’t even have a minimum credit score, or not enough to calculate one? The loan would be denied. Also, you might be out of direct alternatives; recent reports show that subprime loans haven’t been going to low-income borrowers.
That’s where indirect lending/financing could be a blessing in disguise.
This type of financing is the one that you get via franchised and independent automobile dealers from another institution than traditional sources (commercial banks and credit unions).
Indirect lending works because of the convenience it provides. You can show up to at a dealership providing indirect financing, complete the contract or car financing application, get approved and walk out with your car.
The institutions backing the dealership typically prefer to have the applicant at the point of sale, to make it convenient and easy to branch for car financing. You can buy new car under warranty with zero mileage on the odometer. Indirect financing is therefore opening up car buying opportunities across the spectrum – which is good for millions of middle- to low-income earners and the overall economy.
Here are additional benefits of indirect financing
Indirect financing such as automobile contract purchases allow you to make payments over time, so those unable to qualify for traditional loans can obtain and vehicle and work towards reestablishing credit. An overview of Consumer Portfolio Services shows that automobile contract purchases are ideal for indirect financing to customers with low incomes, past credit problems, and limited credit histories. It facilitates those who are not able to obtain financing from banks and captive finance companies. An initial payment is normally required, but consumers often find the contract fitting their budgets.
Reduction in ownership costs
Vehicle ownership has a lot of associated costs, and customers, especially those in the lower income group, are looking for options to cut cost. For those qualifying for loans through a minimum credit score, it means stretching out the loan’s length in order to secure lower monthly payments. But with contracts, some companies already include coverage for ownership costs such as repair costs, means there are fewer surprising costs associated with vehicle ownership.
Increases automobile value
Many indirect financing contracts will let you transfer the contract’s ownership along with a vehicle. If someone is interesting in buying your car, having the contract will make it more attractive. Moreover, you wouldn’t need to get buried in paper work when passing along the contract and vehicle to another owner, and car repairs till the period of actual sale will be a stress-free endeavor for you.