If your credit is far from perfect and you need a car now, you’ve probably come across some dealers who promise not to check your credit score – but is it too good to be true? Let’s discuss.
Will Credit Check Financing Dealers Really Endorse Anyone?
Dealers who promise not to check your credit score for approval are, in fact, real. They usually don’t check credit scores. These dealerships offer what’s called inside financing, which means the dealer is the lender, and they’re more concerned with your ability to make the monthly loan payment than your credit score. Dealers who don’t check your credit for approval are referred to as Buy Here Lots, Pay Here (BHPH), or Dealer Totes Totes.
While they usually don’t check credit scores, BHPH dealerships require down payments and also verify your income. Some lots may require a down payment of up to 20% or more of a vehicle’s sale price, and some prefer that you make the loan payments in person (which is not always convenient).
You may be asking yourself “What’s the matter?” You are right to be careful, but these are legitimate dealers that you can get a loan from. However, that does not mean that there is no compromise.
In addition to the down payment requirement, the thing to watch out for with BHPH dealers is the high interest rate that can accompany 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 interest you end up paying.
Can I improve my credit with a BHPH loan?
Payment history represents 35% of your total credit score. If you have a lender who reports your payments and you make them on time, it can help you build your credit score.
However, even if you repay your BHPH loan smoothly, your credit might not improve. And when you need another vehicle, you may need to go back to the BHPH dealership and repeat the cycle. Although BHPH dealers do not check your credit for approval, some still do not 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 you build your credit if the dealership doesn’t declare your loan. At the same time, these dealers are likely to report any late or missed payments and / or repossessions, which lowers your credit score.
How Can I Improve My Bad Credit With An Auto Loan?
Having a bad credit rating can hamper your ability to get approved for a car loan. If you can’t get approval from a traditional lender and want to improve your credit score, subprime auto financing may be for you.
Unlike Buy Here Pay Here, subprime lenders report your payment behavior, which is reflected on your credit reports; it can help build a better credit rating. Having a better score can mean a lower interest rate on future loans and could make it easier to approve those loans.
Subprime lenders require more information from you in order to be considered for a loan than traditional lenders or BHPH dealers. These stipulations may include a down payment of at least $ 1,000 or 10% of the vehicle’s sale price, proof of income, proof of residence, proof of telephone and personal references.
The bottom line
If you are in a hurry, a dealer buy here pay here can certainly help you in the short term. But in the long run, a batch of BHPH could end up costing you more in interest charges, and some won’t improve your credit score for subsequent auto loans.
TO Auto Express Credit, we can help you connect with a dealer that has special financing – BHPH dealers are not your only option. Simply complete our free auto loan application form so we can search for a local dealership in your area that works with borrowers in unique credit situations.