When you have bad credit, it can be tough to get approved for a car loan. Most lenders aren't willing to approve applicants with poor credit scores, which can leave you looking for other options. Two of the most common alternatives are either a bad credit auto loan or a buy here pay here dealership.
Bad Credit Auto Loan
A bad credit auto loan is a car loan for borrowers with a subprime credit score (typically below 620). These loans give people - with bad credit, no credit, or previous credit issues like a bankruptcy or repossession - a chance to finance a car.
Car buyers with poor credit scores can find one of these loans at a special finance dealership. These dealers are connected to subprime lenders, who are willing to work with people with damaged credit.
The way you approach buying a car is much different with a bad credit car loan. You start by sitting down with a finance manager at the special finance dealership. They'll go over your application and determine which of their lenders can help you out. Once approved, you'll be given a payment range, and you then choose a car from the dealership's inventory that meets this requirement.
This process ensures you don't spend too much and keep within your budget. This gives you the best chance to successfully complete the loan. And you'll want to do that, because an auto loan can help you improve your credit. When your loan and on-time payments are reported to the credit bureaus, your credit score can improve drastically by the time you have paid off the loan.
The downside is that these loans carry higher than average interest rates. This is because interest rates are largely determined by your credit score. But if you improve your credit with timely payments, chances are you'll get a better rate on your next loan.
Buy Here Pay Here Dealerships
If you have been denied by a special finance dealership, it might be time to try a buy here pay here (BHPH) dealership. These places go by many other names, including in-house financing and tote the note car lots.
The biggest advantage these places offer: they will not run a credit check. This is because they do not use third-party lenders and do their financing in house. BHPH dealers do not care about your credit score and just need you to prove you have a regular income.
You arrange the loan at the dealership. Again, you will sit down with their finance manager and determine what you can afford. Once you've worked that out, you can select a car that fits your needs from their inventory.
However, a car loan from a BHPH dealer also comes with a few downsides:
- Inventory is typically limited to older used cars.
- Interest rates are high.
- You may have to make your payments in person at the dealership, which is where the "buy here pay here" name comes from. Also, you may be required to pay weekly or bi-weekly, which can be an inconvenience.
- They may not report your positive payment activity to the credit bureaus.
That last point can be a real crusher. If they aren't reporting your payments, your loan isn't doing anything to improve your credit. However, some BHPH dealers do report both loans and payments, so make sure to ask before agreeing to a loan.
The Bottom Line
If you have bad credit and need a car loan, you'll need to seek alternative options. But it can be tough finding a dealership that can work with your situation. That's where Auto Credit Express comes in.
We have gathered the nation's largest network of special finance car dealerships. We can connect you to one right in your area. All you need to do to get started is fill out our easy online application. Our service is free and our process is fast, so the sooner you apply, the sooner you could be driving off in your next car.