If you’ve got less than perfect credit and you need a car now, you’ve probably come across dealerships that promise they won’t check your credit score – but is this too good to be true? Let’s discuss.
Will No Credit Check Financing Dealerships Really Approve Anyone?
The dealers that promise they won’t check your credit score for approval are, in fact, real. They don’t typically check credit scores. These dealerships offer what’s called in-house financing, meaning that the dealer is the lender, and they’re more concerned about your ability to make the monthly loan payment than your credit score. Dealerships that don’t check your credit for approval are called buy here pay here (BHPH) lots, or tote the note dealers.
While they don’t usually check credit scores, BHPH dealerships require down payments and they also check your income. Some lots may require a down payment up to 20% or more of a vehicle’s selling price, and some prefer that you make loan payments in person (which isn’t always convenient).
You may be wondering, “What’s the catch?” You’re right to be cautious, but these are legitimate dealers that you can get a loan through. However, this doesn’t mean there aren’t any trade-offs.
Along with the down payment requirement, the thing to look out for with BHPH dealerships is the high interest rate that can come with these loans. With a high interest rate, you end up paying more for the car – especially if you have a longer loan term. An interest rate is simply the cost of borrowing money. The longer the loan, the more you end up paying in interest charges.
Can I Improve My Credit with a BHPH Loan?
Payment history makes up 35% of your total credit score. If you have a lender that reports your payments, and you make them on time, this can help build your credit score.
However, even if you repay your BHPH loan with no bumps in the road, your credit may not get any better. And when you need another vehicle, you may end up having to return to the BHPH dealer and repeat the cycle. Although BHPH dealerships may not check your credit for approval, some still don’t report loans or timely payments to the credit bureaus.
This means that even if you have a perfect payment history with a BHPH auto loan, it won’t help build your credit if the dealer doesn’t report your loan. At the same time, these dealerships are likely to report any late or missed payments and/or a repossession, which lowers your credit score.
How Can I Improve My Bad Credit with an Auto Loan?
Having a bad credit score can hinder your ability to get approved for a car loan. If you can’t get approved by a traditional lender and you want to improve your credit score, subprime auto financing may be for you.
Unlike buy here pay here lots, subprime lenders report your paying behavior, which is reflected on your credit reports; this can help build a better credit score. Having a better score can mean a lower interest rate on future loans and could make getting approved for these loans easier.
Subprime lenders require more information from you in order to be considered for a loan than traditional lenders or BHPH dealers. These stipulations can include a down payment of at least $1,000 or 10% of the vehicle’s selling price, proof of income, proof of residence, proof of phone, and personal references.
The Bottom Line
If you’re in a pinch, a buy here pay here dealership can definitely help in the short term. But looking long-term, a BHPH lot could end up costing you more in interest charges, and some won’t improve your credit score for later car loans.
At Auto Credit Express, we can help connect you to a dealer that has special financing – BHPH dealerships aren’t your only option. Simply fill out our free auto loan request form, so we can look for a local dealer in your area that works with borrowers in unique credit situations.