The main difference between a traditional car loan and in-house financing is the process in how you get the vehicle. Both can involve finding a dealership, applying, and financing the car, but the lending process is what sets in-house financing apart.
Auto Loan and In-House Financing Similarities
Auto loans involve getting approved by a lender and using that loan to pay for a vehicle. You pay for the car loan in installments, usually monthly, and you get full ownership of the vehicle then once the full amount is paid off.
Both in-house financing and traditional auto loans involve all of those things. You apply for financing with a lender, and if you meet all their requirements, they pay for the car and set up loan terms so you can pay them back.
However, if you choose in-house financing, the process is a little different. In-house financing means that your dealer is also your lender. Instead of applying with a third-party lender that sends a check to the dealership, an in-house financing dealer does it all.
The biggest plus to getting an auto loan from an in-house dealership is that they usually skip the credit check, so they often cater to borrowers with less than perfect credit. With a skipped credit check, though, there are some downsides to be prepared for.
How In-House Financing Differs
In-house financing dealerships are also called buy here pay here (BHPH) used car lots. These dealers only sell used vehicles, and they’re scattered all over the country. They usually advertise things like, “Bad credit? No problem!”
If you’re a new borrower with a lower credit score, or you’ve had credit issues throughout the years and your score is in the red, it’s tempting to visit a BHPH dealership. They do work with borrowers with difficult credit situations, but there are some things to be aware of before you sign on the dotted line.
Firstly, credit repair may not be possible with in-house financing. If the dealer didn’t check your credit, there’s a good chance they’re not going to report your auto loan to the credit bureaus. If a loan isn’t reported, your on-time payments aren’t recorded, which does nothing to improve your credit score.
Car loans are a great way for borrowers to put their credit back on track, but it needs to be reported to be of any help. Before you go through with a BHPH dealership, ask about their reporting practices if you want to see a better credit score on the other side of an auto loan.
Another thing to anticipate is a higher than average interest rate. Lenders that don’t check credit scores are taking a higher risk than those that do, since your credit reports are largely used to guess how well you’re going to handle the loan. To make up for the higher risk, no credit check lenders typically charge you more when you borrow from them. You could see an interest rate in the high double digits from an in-house financing dealer.
Despite those downsides, if you’ve tried all other car financing routes, an in-house financing dealership could be your way of getting the vehicle you need. The process is usually quick, and if you’ve got income and a down payment, you could be driving off the lot with a car.
Have You Really Tried Everything?
If you have poor credit and you’re struggling to get a hold of vehicle financing, you may feel like in-house financing is your last chance.
But, before you head out to find a BHPH dealership, check out these avenues:
- Credit repair – If your credit score is what’s getting in the way of an auto loan approval, then you can work on your credit! It sounds daunting, but there are ways to do it that are pretty stress-free. First, review your credit reports by requesting them from the three major credit bureaus: TransUnion, Equifax, and Experian. You can request them for free once a week until April 2021 due to COVID-19 from www.annualcreditreport.com. Review all three, check for errors, dispute inaccuracies, and research your credit-score shortcomings. Time heals credit, since most negative marks go away after seven years, and paying all of your bills on time is the best way to boost your credit. For more tips, click here.
- Your credit union – The captive lenders of carmakers and large banks are more likely to have higher credit score requirements for their auto loans, but credit unions tend to be more forgiving. If you’re a long-standing member of a credit union, and your accounts are in tip-top shape, check with them for a car loan. It’s not a guarantee, but it’s definitely worth a shot. These institutions are member-owned and not-for-profit, so they may be willing to give you a chance at an auto loan if you’ve got all other bases covered such as income.
- Subprime car loans – Subprime financing is done through special finance dealers. These lenders specialize in helping borrowers with bad credit, and they always report their auto loans to the credit bureaus; giving you a chance for a car loan and credit repair. They examine your income, stability, ask for a down payment, and often assist borrowers in all sorts of tough credit situations like bankruptcy or habitual bad credit.
If you’ve tried all of these options and more with no luck, then an in-house financing dealership may be your solution to your no-vehicle problem. But if you haven’t tried everything, and you want a better credit score, try to work with a lender that reports their loans so you can improve your credit score for the future. A better credit score means a better chance of qualifying for car deals, lower interest rates, and new credit in general.
Ready to Find a Bad Credit Car Loan?
Not every dealership is equipped to handle bad credit buyers. However, we know the ones that are ready! Here at Auto Credit Express, we know a thing or two about bad credit auto loans, because we’ve been in the business of connecting borrowers to dealers for over 20 years.
To get matched to a dealership in your local area that’s signed up with bad credit lenders, complete our free car loan request form. Skip the hassle of hitting the bricks and looking for a dealer yourself – get started with us today completely online and we’ll do the looking for you.