Credit Acceptance Corp: A Closer Look at One of America’s Top Auto Finance Companies

Credit Acceptance Corp: A Closer Look at One of America’s Top Auto Finance Companies

Leading auto finance company helping buyers with subprime credit.

  

When it comes to financing a car, especially for those with less-than-stellar credit, the whole process can feel pretty daunting. Traditional lenders often turn down applications, leaving many Americans scratching their heads about what to do next. That’s where Credit Acceptance Corporation (CAC) steps in. For more than forty years, this company has focused on helping customers secure auto loans—even those who have faced rejection elsewhere.

While Credit Acceptance Corp has gained a reputation for giving people a second chance, it hasn’t been without its share of criticism. Both consumers and financial experts have raised concerns about some of the company’s practices, particularly regarding interest rates and the overall cost of financing.

In this blog, we’ll take a closer look at Credit Acceptance Corp—who they are, how they operate, what sets them apart, and what consumers should be mindful of. If you’re thinking about financing a car through them or are just curious about how subprime auto lending works, you’ve come to the right spot.

What Is Credit Acceptance Corp?

Founded in 1972 and based in Southfield, Michigan, Credit Acceptance Corp is a publicly traded company listed on NASDAQ under the ticker symbol CACC. Their main service is providing auto loans to consumers with poor credit, no credit, or a history of financial challenges. They collaborate with a network of car dealerships across the United States, offering indirect financing to help people purchase vehicles that might otherwise be out of reach.

CAC doesn’t operate quite like traditional lenders. Instead, they team up with dealers who sell used cars, allowing those dealers to structure loans according to Credit Acceptance's guidelines. The dealer receives payment upfront or through a shared payment stream, while CAC collects payments from the borrower throughout the loan term.

This model enables Credit Acceptance to take on more risk, but it often comes with higher interest rates and longer loan terms.

How Does Credit Acceptance Corp Work?

The journey usually kicks off at the dealership. A buyer strolls onto the lot, spots a car they love, and applies for financing. If their credit score is on the lower side or there are other financial concerns, the dealership might turn to Credit Acceptance Corp for financing help.

Once the buyer gets the green light, they sign a loan agreement. CAC either provides the dealer with an upfront payment (known as an “advance”) or agrees to pay the dealer a portion of the monthly payments as they come in. The buyer then starts making payments to Credit Acceptance over time, typically through automatic withdrawals or checks sent in the mail.

This whole setup is designed to make car ownership possible—even for those who have faced bankruptcies, foreclosures, or repossessions.

Why Credit Acceptance Appeals to Many Americans

Millions of Americans face credit challenges. Whether it’s due to job loss, medical expenses, or past mistakes, many consumers find themselves locked out of traditional lending options. That’s where CAC steps in to fill an important need.

Here are a few reasons why people turn to Credit Acceptance:

• They approve individuals with bad credit or no credit history.
• There’s a vast network of dealers across the USA, making car shopping more convenient.
• They report to major credit bureaus, giving borrowers a chance to rebuild their credit by making timely payments.
• Flexible payment options that can be customized to fit each buyer’s financial situation.

For many, Credit Acceptance isn’t just a loan provider—it’s a vital support system.

Understanding the Risks: What Consumers Should Know

Know the risks before signing your auto loan.

While Credit Acceptance Corp (CAC) offers a lifeline for those in need of auto financing, it’s crucial to approach this option with a clear understanding of what you’re getting into. The ease and accessibility of these loans come with some significant trade-offs.

For starters, the interest rates on CAC loans can be quite steep, often exceeding the average by a wide margin. Some borrowers have found themselves facing Annual Percentage Rates (APRs) of 20% or even higher. Over the duration of the loan, this can lead to thousands of extra dollars added to the overall cost of the vehicle.

Beyond the high interest rates, some borrowers have encountered additional challenges, such as:

• Aggressive collection practices when payments are late.
• Vehicle repossession after just a brief period of missed payments.
• Limited customer support when it comes to resolving disputes or technical issues.
• Confusing contract terms that aren’t always clearly explained at the dealership.

For consumers, this underscores the importance of reading the fine print, asking questions, and ensuring you fully grasp the terms before putting pen to paper.

How Credit Acceptance Corp Makes Money

The business model of CAC revolves around calculated risk-taking. They understand that many borrowers, even those with less-than-perfect credit, will manage to make their payments. When that happens, the company benefits from interest income, servicing fees, and shared revenue with dealerships.

However, CAC is also prepared for the possibility of losses. Some borrowers will inevitably default. In those situations, CAC can still recoup some of their money through vehicle repossession or resale, collections, and other recovery strategies.

By setting higher loan prices, the company can balance out those losses and still maintain profitability. This approach has enabled Credit Acceptance to stay financially robust, even during tough economic times.

In fact, the company has consistently reported earnings growth over the years, making it a popular choice among certain investors, despite the controversies that sometimes surround its practices.

Credit Acceptance Corp and Your Credit Score

One of the bright spots for borrowers is that CAC reports to all three major credit bureaus—Experian, Equifax, and TransUnion. This means that if you make consistent, on-time payments, you can gradually improve your credit score.

On the flip side, though, missed or late payments can hurt your credit, and defaults can be particularly damaging.

For those looking to rebuild after past financial troubles, having the chance to demonstrate positive credit behavior can be a significant advantage. Just be sure that the loan is manageable from the get-go to avoid falling behind.

Legal and Regulatory Scrutiny

Credit Acceptance Corp hasn’t been without its share of controversy. In recent years, the company has faced lawsuits and regulatory investigations related to its lending practices.

In 2023, for instance, the Consumer Financial Protection Bureau (CFPB) and several state attorneys general took legal action against Credit Acceptance, claiming they trapped borrowers in unaffordable loans and failed to disclose crucial information.

The lawsuits allege that CAC violated consumer protection laws by:

• Misrepresenting loan terms.
• Allowing dealers to inflate vehicle prices.
• Not properly verifying a borrower’s ability to repay.
• While CAC has denied any wrongdoing, these legal challenges have brought attention to the larger issue of predatory lending in the subprime auto loan sector.
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For consumers, this underscores the importance of doing your homework on any lender and not just taking a dealership's word for it.

Is Credit Acceptance Corp Right for You?

Is Credit Acceptance right for your auto loan needs?

Deciding if Credit Acceptance Corp (CAC) is the right choice really hinges on your personal financial situation. If you’ve faced multiple rejections from lenders and urgently need a vehicle for work or family responsibilities, Credit Acceptance might be one of the few options left on the table.

However, it’s crucial to tread carefully. Here are some steps to consider before you commit to any loan:

1. Compare lenders. Even if your credit isn’t great, you might still find other loans with more favorable terms.

2. Ask for the APR. Understanding the actual cost of borrowing will empower you to make a well-informed choice.

3. Read everything. Make sure you fully grasp all the details before signing—this includes late fees, payment schedules, and repossession policies.

4. Don’t borrow more than you need. Aim for a practical vehicle that fits your budget rather than one that fulfills your dreams.

Alternatives to Credit Acceptance Corp

If you’re on the hunt for other ways to finance a car with less-than-perfect credit, consider these options:

1. Credit Unions – Many credit unions provide bad-credit auto loans at lower rates compared to subprime lenders.

2. Buy-Here, Pay-Here Dealers – These dealers handle the financing themselves, but be aware that their rates can be quite high.

3. Co-signed Loans – If a family member or friend is willing to co-sign, you might secure better loan terms.

4. Credit Builder Loans – While these aren’t for purchasing a car directly, they can be a fantastic way to boost your credit score before you apply for auto financing.

Taking the time to explore your options could save you a significant amount of money over the life of your loan.

Final Thoughts: The Bottom Line on Credit Acceptance Corp

Credit Acceptance Corp stands out as a significant player in the auto financing arena, especially for those with less-than-perfect credit. They provide opportunities for many, but it’s important to remember that these come with their own set of challenges. While some borrowers have successfully secured a vehicle, others have faced hurdles like steep interest rates, stringent repayment terms, and even legal issues.

If you’re thinking about going with CAC for your auto financing, it’s crucial to fully grasp what you’re getting into. Take the time to read through every detail of the contract. Don’t hesitate to ask questions. And be honest with yourself about whether you can manage the payments.

Ultimately, Credit Acceptance Corp can offer you a second chance—but it’s really up to you to seize that opportunity.