Most people need financing or an auto loan to buy a vehicle. Lenders consider a range of factors when approving or declining your application, and your credit score could be the make or break. If you have a bad credit score, it shouldn't consign you to a bottom-of-the-range car near its end. Many qualified buyers with poor credit can finance their next car and enjoy the same conveniences as car buyers with good credit. If you have a poor credit score or limitations, then consider turning to a bad credit car dealership. Let's take a look at who they are, what they do, and how to find a reputable one.
What is a 'No Credit Check Auto Loan?'
As we mentioned, lenders consider many factors before approving an auto loan, and your credit score forms the foundation of their decision. Your credit score indicates your creditworthiness, partly influenced by your credit history and your ability to pay back your financial obligations on time.
Bad credit auto financing, also known as guaranteed auto loans, is a finance loan offered by dealerships specializing in lending to car buyers with no or bad credit.
Instead of basing their financing terms on your credit history, these car dealers will analyze and ask you for the following:
- Proof of employment
- Proof of address
- Proof of a steady income
You will need to provide proof of the above, together with a valid driver's license.
Most people qualify for a guaranteed auto loan; however, most of these bad credit car dealerships will require you to earn an income above a certain amount for approval.
Depending on the results of their findings of your loan application, prospective car buyers should consider the following for getting their bad credit auto loan:
- You may pay a higher interest rate
- You may need to pay a large down payment
- Someone with a good credit score may need to cosign your credit application
Getting a Good Deal at a Bad Credit Car Dealer
Just because you have no or poor credit behind your name doesn't mean you are not worthy of car financing. Bad credit can limit your vehicle financing options, but that doesn't mean you should resign yourself to terms exceeding your budget. With the right amount of research and planning, you can still get a great deal on a used car.
Here are some points worth considering before engaging in the car buying process:
Check Your Credit Situation
Just because you think you have a low credit score doesn't mean you actually do. There are a lot of car buyers who visit bad credit car dealerships because they believe they have poor credit, and sometimes that isn't really the case. Instead of resigning yourself to a bad credit score without knowing it, obtain copies of your credit reports before visiting any dealership.
AnnualCreditReport.com gives you one free report annually from each of the main credit bureaus, including Experian, Equifax, and TransUnion.
Scrutinize your credit report and ensure all the information is correct before committing to the car buying process. You may even find mistakes on your credit reports that could boost your scores once rectified. Pay special attention to the section that notes potentially negative items called risk factors. They could be anything from old debt that went to collections to a fine paid in a civil court case.
A score above 781 to 850 is excellent or super-prime. A credit score below 670 is considered fair or poor, and you may not be eligible for any loans with this score.
- Super prime: 781-850
- Prime: 681-780
- Nonprime: 601-680
- Subprime: 501-600
- Deep subprime: 300-500
If your credit score is bad, you may want to delay your new vehicle purchase instead of being limited to the options of a bad credit auto dealer.
Make a Large Down Payment
If you want more affordable monthly payments, consider paying a large down payment when starting the application process. This will help you lower your monthly payments, and you may even get a better interest rate from the finance department assisting you with the loan.
Bad Credit Financing Options
Once you have established that your credit score isn't appealing to lenders, you can approach bad credit score car dealerships. They offer in-house financing to borrowers with no credit or a bad credit score. These bad credit car dealerships often offer more loan options than other lenders, making them an attractive choice for a bad credit car loan.
Dealers who offer in-house financing, like bad credit car dealerships, are also known as buy here pay here dealers and are independently owned. These dealers play a double role as the lender and the dealer and have their own lending process.
In-house financing works differently from franchised or traditional dealerships that have lending partners, such as credit unions, sub-prime auto loan lenders, captive lenders, and banks. If you apply for finance at a traditional dealership, then your loan application may be sent to several lenders at once after prioritizing your credit reports. If your score doesn't meet the specified requirements of the lender, then your finance application is rejected.
In-house financing dealers do not use third-party lenders for the loan process. This means the lending process is more convenient, quicker, and even car buyers with a low credit score can be approved if they meet the in-house financing requirements.
The business model of a bad credit car dealer is typically based on selling used vehicles to car buyers with below-average credit scores. They can achieve this model because the vehicles financed are collateral for their own bad credit auto financing. If the customer cannot afford to make their monthly repayments on time, then the car dealer will resort to repossession and sell it to another buyer.
Advantages of Using a Bad Credit Car Dealership
Choosing a bad credit car dealership offers the following benefits:
Bargaining powers: You have some wiggle room for negotiation with an in-house finance dealer; you can discuss the loan terms, including the length of the loan, interest rate, and down payment amount.
Putting down a large down payment gives you more bargaining power for a lower interest rate and better terms because the lender carries less risk.
Bad credit car dealerships may offer incentives and specials that traditional financial institutions can't, such as extended warranties, flexible interest rates, and schedule services on your car.
Disadvantages of Using a Bad Credit Car Dealership
There are some downsides too, including:
You may pay a higher interest rate for accessibility to a car loan when you have a low credit score.
These in-house auto loans do not offer a chance for credit repair since the bad credit car dealer won't always pull your credit reports during the auto loan process and isn't likely to report the loan or your regular payments to the credit bureaus. Without these auto loans being reported by the dealer, your credit score won't benefit from your good loan management.
If credit repair is a large factor for you and you need a car loan with bad credit, then sub-prime auto loan lenders may be the better option for you. These lenders will review your credit reports because they specialize in credit-challenged applicants.
You may need to have a sizeable down payment handy before the loan process starts.
You have a limited choice of vehicles to choose from.
What to Ask Your Bad Credit Car Dealer
Dealing with a bad credit car dealer is much easier than you think.
Below are some questions you should ask your chosen dealer to help you understand what you are getting into:
- What type of used cars do I qualify for, and in what price range?
- How high is my interest rate?
- Are there any potential penalties for my auto loan?
- What is the total amount being financed, including the interest and total cost of the vehicle?
- How many monthly payments will I be making?
- What is the exact amount of each monthly payment?
- Is credit insurance available, and do I need to apply for it?
- If I need credit insurance, do you offer it? If not, can you recommend a reputable provider?
- Can I still get a used vehicle without a down payment? Would you accept my trade-in vehicle as a down payment?
- Who is the actual lender, and am I guaranteed the quoted rate?
Finding a Bad Credit Car Dealership
Often the most difficult part of getting approved for a bad credit auto loan is finding the right bad credit car dealership. There are two types of bad credit car dealers to look for; subprime lenders that work through special finance departments and in-house financiers, like your buy here, pay here lots. The easiest way to find these bad credit dealers is to look online.
Online Bad Credit Car Dealerships
Many bad credit car dealerships have online sites that list their vehicles, process car payments, and offer online loan applications.
Many car buyers use their online services to determine the loan amount and terms they qualify for before starting car shopping. Once you have approval, you can browse the used vehicles you qualify for. The loan application can be processed online as well as any down payments.
Top Bad Credit Dealers and Lenders
Below are some of the top options available for bad credit car dealerships that specialize in extending auto loans to applicants with all types of credit scores.
Auto Credit Express - More than 1,200 U.S. auto dealers partner with Auto Credit Express for applicants with a low credit score.
Car.Loan.com Auto Loan: This lending network doesn't need a minimum credit score for an approved application.
myAutoLoan.com: This network provides auto loans for used and new cars, even with a poor credit score.
DriveTIme: This dealer offers more than 11,000 vehicles over 130 U.S. locations and boasts a customer approval rating of 99.9%.
Carvana: Similar to DriveTime, Carvana completes all its sales online. They are good for one-stop shopping.
CarMax: They are also an online dealer, and if the car you want isn't nearby your residence, they will ship the vehicle to you for free.