If you're looking at car dealer websites and wondering why you never quite get that "yes" you're looking for on auto loan applications, maybe it's time to search for another way. In-house financing or subprime lending may be the answer you're seeking when you need to purchase a vehicle and have bad credit.
In-house financing is a type of loan from a person or entity that both finances your loan and sells you the car. These used vehicle lots are most often referred to as buy here pay here (BHPH) car lots or tote the note dealerships. They can be a convenient one-stop shop for bad credit borrowers who need an auto loan fast.
Here's a quick breakdown of what you can expect from an in-house financing lot:
- The dealer is the lender
- Many don't check your credit
- Often same-day service
- Fewer requirements for approval than subprime lenders
- They only sell used vehicles
- Usually higher interest rates
- Proof of income and ID required
- They require a down payment, which could be around 20% or more of a car's selling price
- You may have to make payments in person, sometimes every week or two
- Not all of them report loans or on-time payments to the credit bureaus
In-house financing doesn't rely on third-party lenders like dealerships do, so the process can be quicker. In many cases, you may be able to drive away with a new-to-you vehicle the same day. But, the price for not having a credit check performed when you're attempting to qualify for an auto loan often comes in the form of higher interest rates, a larger down payment requirement, and possibly a longer loan term.
And, since not all of these lenders report your timely payments to the credit bureaus, an in-house financing car loan may not improve your credit score.
In-House Financing vs. Subprime Lending
Borrowers with poor credit can look to in-house financing dealers or special finance dealerships for their next auto loan. Both offer options for borrowers with less than perfect credit, but they have some major differences.
The biggest difference between the two types of financing is that in-house financing doesn't rely on your credit score at all, while subprime lenders do. However, subprime lenders don’t make your credit the end-all, be-all.
They’re more concerned with you proving you have the ability, stability, and willingness to take on a car loan. They also report your on-time loan payments to the major credit bureaus, which can improve your credit score.
Payment history is the most impactful part of your credit reports on your credit score. So, having a long-term positive payment history on an auto loan can build your credit so you can qualify for better rates and terms on credit in the future.
Subprime lending options breakdown like this:
- Lenders are a third party, only working through dealer special financing departments
- Interest rates are higher than those for good credit consumers
- Lots typically sell both new and used vehicles
- Your credit is checked
- Documentation is required to prove you meet the lender's requirements
- At least 10% of the car's selling price or a minimum $1,000 down typically required
- Vehicle selection limited to approval amount
- Timely payments are reported to the major credit bureaus: Experian, TransUnion, and Equifax
With hard work and an auto loan from a subprime lender, you may not need to rely on bad credit car lenders in the future. A better credit score can widen your vehicle options even more, and help you qualify for better interest rates for later credit opportunities.
Let Us Help You Get Your Next Auto Loan
Whether you choose to go with an in-house financing lot or a subprime lender is up to you, but know that in-house financing often offers a good second chance if you're turned down by a subprime lender. If you're starting your search for another car, we want to help.
You can skip the search altogether by letting us be your guide. At Auto Credit Express, we've been matching consumers to special finance dealerships, including some with in-house financing options, for over 20 years. We want to help you find a dealer in your area that can get you into the vehicle you need.
To get started, simply fill out our fast, free, and zero-obligation auto loan request form. After you do, we'll get right to work for you!