If you’ve got bad credit, seeing a “no credit, no problem!” auto loan financing advertisement may catch your eye – but what’s the real catch? Why don’t they look at your credit, and is this worth checking out?
No Credit Checks Dealers
The answer a lot of the times is, yes, these no credit check dealerships don’t check your credit score. Dealers that don’t check your credit score for car loan financing are often more concerned with your ability to keep up with the monthly payment. They do, however, check your income and require a down payment. These dealerships are called buy here pay here (BHPH) lots, or tote the note dealers.
BHPH dealerships don’t use third-party lenders, meaning you arrange the loan at the dealership, and the dealer is the lender. This is called in-house financing. In addition to arranging the loan at the dealership, some BHPH dealers may require you to make the loan payments in person.
Another thing to watch out for is high interest rates. Typically, BHPH lots feature higher than average interest rates on their loans, which could be considered the trade-off for skipping the credit check. This means you’re going to be paying more in interest charges the long run – especially if you decide on a long loan term.
Can a BHPH Car Loan Help My Credit?
While BHPH dealerships don’t perform a credit check, they may not report your on-time payments, either. They’ll report any late or missed payments and a repossession, though. So, there’s sometimes no reward for good paying behavior, but there is a punishment for bad paying behavior.
If credit improvement is important to you, be sure to ask if the dealership reports loans and timely payments to the credit bureaus before deciding to go with a BHPH lot. If the BHPH dealer isn’t reporting your on-time payments, your credit score won’t improve from the auto loan. But you have other options.
There are subprime dealerships that may be able to get you financed – even with bad credit.
Having a credit score below 660 is usually considered bad credit. Traditional lenders are often hesitant to finance borrowers with poor credit. However, dealers with special financing departments that work with subprime lenders can often help credit-challenged buyers.
Unlike a traditional car loan, subprime financing has a few more requirements that you have to meet for loan consideration. Often, bad credit lenders require a minimum monthly income of $1,500 to $2,000 before taxes, and a down payment of at least 10% of the vehicle’s selling price or $1,000.
Each bad credit lender is different, but the majority also require things like proof of a working phone, proof of residence, a consistent work history, a few personal references, and a valid driver’s license.
Bad credit lenders report auto loans and timely payments, so this can be reflected on your credit reports. If you’re making on-time payments, your credit score could increase and help you down the line.
The Bottom Line
No credit check car lots usually don’t check your credit for auto loan approval, but they may not help your credit for future vehicle purchases, either. If you have no other options, buy here pay here dealerships could help you get a car right away. But if you want to build your credit for future auto loans, subprime financing may be the answer.
At Drivers Lane, we’ve gathered a network of dealers that have special financing departments that work with subprime borrowers. If you have bad credit and need a vehicle, we want to help. To get connected to a dealership in your area with bad credit financing, simply fill out our free car loan request form!