When you're looking for a bad credit auto loan, you may find buy here pay here (BHPH) dealers and subprime lenders in the same light. Though both can help borrowers with bad credit, there are some key differences in how they do things.
Buy Here Pay Here Dealerships
If you need a car and your credit score is very low, or even nonexistent, you may feel like you have no choice but to go to a BHPH lot. Also known as in-house financing dealerships, these places have a reputation for quick auto loans and no credit check financing. This can be a quick option if you need a bad credit car loan.
BHPH dealerships typically work with borrowers who have a credit score of around 660 or below. However, there tends to be fewer requirements with most BHPH dealers than subprime lenders.
Here are seven things you can expect of a BHPH dealership:
- BHPH dealers only finance used vehicles.
- No waiting for outside (third-party) lender approval – the dealership is the lender.
- You're likely to see a higher than average interest rate. Many BHPH dealers charge higher interest rates in lieu of checking your credit.
- Since BHPH dealerships may not check your credit, they may not report loan activity either. In some cases, they report your on-time payments, but many only report negative activity, like late or missed payments.
- You may be asked to make payments more than once a month. Some BHPH dealers also make you pay them in person. This falling out of practice, though, as the popularity of online payments and the need to do more things virtually increases.
- You may only need a qualifying income and a down payment to be approved for an auto loan.
- You may be asked to pay a larger down payment than with a subprime lender, sometimes around 20% of the car's selling price.
Subprime lenders also finance borrowers who have less than perfect credit. They're third-party lenders that work with special finance dealerships. Subprime lenders check your credit, but they know that you're more than just a credit score and use many other factors to offer auto loan approvals.
Here are seven differences between BHPH dealers and subprime lending:
- Subprime lenders may finance new, used, or certified pre-owned vehicles, depending on your situation and dealership inventory.
- Subprime lenders are indirect lenders. You sit down with the special finance manager at a dealer, and don't actually apply directly with the lender.
- You're likely to see a higher than average interest rate since they're somewhat based on credit score. The lower your credit score, the higher the rate usually is. However, the rates with subprime lenders tend to be lower than at a BHPH dealership.
- You need to bring in several documents for a car loan approval with a subprime lender. These typically include proof of income and proof of residence, among other things.
- Generally, subprime lenders require you to make a down payment of at least $1,000 or 10% of the vehicle's selling price.
- Subprime lenders do check your credit reports and scores.
- All loan activity is reported to the major credit bureaus: TransUnion, Experian, and/or Equifax.
Borrowers With Bad Credit
When you have bad credit, both a BHPH dealer and a subprime lender could work for you. Usually, bad credit is considered a credit score of around 660 or below. Some bad credit lenders have cutoffs, or a certain range of bad credit scores that they provide financing for. Others take a broader approach and finance a wide range of borrowers, even those with little to no credit or with a bankruptcy on their credit reports.
In order to know which of these is the right path for you, start by knowing your credit situation. This means getting both your credit score and credit reports. You can't truly know which option to choose if you let the lender look at your credit but don't know yourself what they're looking at. When you know your credit, you have the power to negotiate the best car loan deal you can get.
To request a free copy of your credit reports from each of the three major credit bureaus, visit www.annualcreditreport.com. This free government website allows you to request your credit report for free once a week. As of April 2021, the site is slated to return to only allowing a copy of your credit reports from each bureau only once every 12 months, so it's a good idea to start checking yours ASAP.
Some issues that come up on your credit reports may make it difficult to be approved with a subprime lender, but may not be as big of an issue for some BHPH dealerships. These could include such things as repossession less than one year old.
Ready for a Bad Credit Auto Loan?
Now that you know the key differences between a BHPH dealer and a subprime lender, you can choose the path that's best for your unique situation. If you're not sure where to start, we can point the way.
Here at Auto Credit Express, we've been matching credit-challenged consumers to dealerships that have bad credit lending options for over 20 years. Let us get you started toward your next auto loan by filling out our free car loan request form now!