If your credit score is stopping you from getting into your next vehicle, a tote the note dealer may be what you need. These dealerships often skip the credit check. We cover why they don’t pull your credit reports, and how the whole financing process works at these bad credit used car lots.
“Bad Credit, No Credit – No Problem!”
If you’ve seen a dealer that advertises that they're willing to consider anyone for an auto loan, regardless of their credit, it’s probably a tote the note dealership. They’re also called in-house financing or buy here pay here (BHPH) used car lots.
Traditional auto financing usually involves the buyer going through their own credit union or bank, and getting a pre-approval, then heading to a dealer. Or, the buyer gets financing from a third-party lender that’s signed up with the dealership. Both of these lenders typically pull credit reports (a hard inquiry) to determine the borrower’s ability to take on a car loan.
A tote the note dealer does all the financing themselves, so they usually skip the credit check. This is because they’re also your lender. It’s a one-stop-shop car buying process – you shop and finance with the dealership. It's called in-house financing because all of the financing is done – you guessed it – in-house.
All of the vehicles at in-house financing dealers are used models. However, while they can’t sell you a brand-new car, what they can offer is a second chance at getting into an auto loan despite a battle-scarred credit history.
Downsides to a Tote the Note Dealership
Just like everything else, there are two sides to used car lots. There are definitely considerations to ponder before you head out the door and seek out a BHPH dealership.
For starters, these dealers may not report their auto loans to the three major credit reporting agencies: TransUnion, Experian, and Equifax. What this means for you, as a borrower with poor credit, is that your credit score wouldn’t improve even with timely payments. Though, your missed or late payments usually get reported. This isn't ideal, since your credit score doesn't have a chance to repair itself while you're financing at a tote the note, and there's still a risk for your credit score to take a dive.
Another consideration is the down payment requirement and the interest rates. Used car lots can require a down payment of around 20% of the vehicle’s selling price. The interest rates could be high as well, often in the double digits. Many borrowers consider these fair trade-offs for getting into an auto loan without the credit check, though.
If your credit score is already looking rough, and you want a chance at credit repair, a subprime car loan could be worth looking into.
Subprime Auto Loans
Like BHPH car lots, these lenders work with borrowers who have less than perfect credit. However, subprime lenders are third-party lenders that are signed up with special finance dealerships.
Special finance dealers have a special finance manager that acts on the subprime lender’s behalf; you never actually meet the lender.
You give all of your information to the dealership, and they send it to one or more subprime lenders. If there’s a lender that can approve you, they ask for documentation that the information you sent is correct. These proofs include things like your check stubs, driver’s license, utility and phones bills, bank statements, etc. Subprime lenders do have minimums you must meet, such as income stipulations and work history requirements.
Once all of your information is verified by the subprime lender, they tell the special finance manager what your maximum monthly payment can be. From there, you find a vehicle, you make a down payment of either at least 10% of the car’s selling price or at least $1,000. You may also be asked to provide a list of personal references, usually around five or eight people.
After all of the paperwork is completed, you can take delivery of your vehicle! You start making payments and they get reported to the credit bureaus. With a subprime auto loan, there’s a chance for credit repair if you work hard to make timely payments, and manage the other aspects of your credit score well.
With a repaired credit score, you can qualify for better interest rates, better loan opportunities, and possibly more expensive cars down the line. A better credit score usually means more freedom on which dealers you shop at, what vehicles you can purchase, and the interest rate you may qualify for, which can save you cash when you finance.
Bad Credit Car Dealerships
When it comes to bad credit auto loans, you’re not out of luck quite yet until you’ve checked out a used car lot, or a special finance dealership. Often, knowing where to go can be the biggest hurdle to overcome when your credit score is suffering. Still not sure where to start? Then look no further than Drivers Lane.
Over the past 20 years, we’ve created a nationwide network of dealers that have the resources to work with credit-challenged borrowers. To get matched to a dealership in your area with bad credit lending options, fill out our free auto loan request form.