Transportation is necessary, and in many parts of the country, people do not have access to subway or metro stations. Meaning owning a vehicle is a must. Unfortunately, getting approved for auto loans is not the easiest thing to do. Especially with a limited credit history or less-than-perfect credit.
This is why many people turn to no credit check car lots or buy here, pay here lots. However, going to these locations is not always the best idea.
When budgeting your income, you likely set aside a specific amount for transportation expenses, including loan payment, insurance, and gas. Using no credit check options will ultimately increase your costs. Because the interest rates are often significantly higher than most traditional loans.
Therefore, when looking for a car, it is vital only to use no credit options when absolutely necessary. You have other options, including finding a co-signer or taking the time to establish or reestablish your credit. When you must use a no credit check lot, make sure you know what you are getting into and know when a deal sounds too risky.
While some legitimate and trustworthy auto-dealers are out there, you will also find your fair share of crooks preying on people with bad credit or a lack of financial knowledge.
Table of Contents
- 1 When To Use No Credit Check Car Lots
- 2 What To Know About No Credit Check Car Lots
- 3 Loan and Financing Programs at No Credit Check Car Lots
- 4 Pros and Cons of No Credit Check Car Lots and Loans
- 5 Other Loan Options for Those With Zero or Bad Credit
When To Use No Credit Check Car Lots
While there are better financing options than a no credit check car loan, sometimes you have limited choices and time. Most people believe they cannot get approved for a loan with bad credit, but that is not always the case. Many lenders specialize in bad credit loans. But these loans carry most of the same risks as buy here, pay here options.
A person should typically use a no credit check lot when they have run out of other options. If you do not have a co-signer or cannot get a loan in your name, a no credit check dealer might be your only option.
You need to be aware that not all dealers are created equal. The inventory and rates will vary based on dealer preferences and available finance options. Also, you should not expect to drive off the lot with a great car.
While many car dealers will advertise being able to choose any car on the lot, this is usually an exaggeration to get people in the door. Your car budget will depend on your income, and usually your credit score — wait, what? That’s right; your score will still play a role in how much you are approved for and the loan interest rate.
What To Know About No Credit Check Car Lots
No credit check dealers serve a purpose and a market. Unfortunately, because they set the terms for their loans, you might find several unscrupulous dealers before landing with a fair operation.
Unlike traditional car dealerships that work with outside credit unions, banks, or other private lenders, no credit check lots act as their own banks. Because traditional lots work with financial institutions, they limit loans based on vehicle value; no credit check operations don’t, meaning you can borrow and pay more than the vehicle is worth.
While overborrowing represents a significant risk and loss to the consumer, many people are willing to take it. Because they need a car. Despite the questionable lending practices, there are other reasons to be cautious of these dealers, including several marketing and business practices.
1. No Credit Check Car Lots Review Your Credit Score
One of the biggest lies at no credit check dealerships is the premise that your credit plays no role in purchasing decisions. All dealerships will review your credit score to determine risk and loan value.
While many consumers cry foul on the practice of using a credit score at a no credit check lot, the dealers typically never state that a credit score will not be used. Your credit score is an indicator of your creditworthiness. And it absolutely plays a role in loan decisions, regardless of a deeper dive into your report.
A no credit check lot offers the chance for loan approval without the weight of the credit score affecting the outcome. A bank uses scores to turn down loans; a no credit check lot uses a score to determine a loan amount.
A trustworthy dealer needs to review your credit score and any current pay stubs to determine your financial health and ability to repay the loan. The dealership is taking on an incredible risk, and it does not want to put a consumer underwater financially or drive them to bankruptcy. Therefore, the lot will use your credit score to determine your financial capabilities.
2. No Credit Check Car Lots Charge High Interest
You should expect to pay higher than average interest rates when going to a no credit check dealer. However, the rates should not be outrageous. Many buy here, pay here operations will charge interest in the low- to mid-20s, which is typical.
Run or walk away if you come across a dealer charging 30% or more. Businesses charging such an enormous sum are trying to maximize their profits on the backs of people who are struggling.
High interest is expected when you have poor credit and cannot receive a loan through more traditional means. Poor or bad credit tells lenders that you represent a more considerable than average risk. Meaning the lender will need to mitigate their risks by increasing interest rates.
There are methods to offset the higher interest, such as a larger down payment. However, you will need to accept that you represent a high-risk borrower with a lower credit score. Still, you need to understand that poor credit does not permit dealers to take advantage of you.
Recognize when a loan program is fair and when the interest rates are predatory. Always be mindful of industry averages, so you can more easily spot the frauds.
3. No Credit Check Car Lots Limit Purchasing Power
Many advertisements for no credit check car lots make the outlandish claim that you can buy any car you want, implying no vehicle is out of reach. However, the ads should stipulate that you can buy any car you want within reason and budget.
The manipulative nature of the ads is meant to drive business to the showroom floor. The more people are coming through the doors, the more money a lot stands to make. Still, it is best to go to a dealership with mild expectations.
Despite the crazy and apparent promises of television or radio ads, your budget and credit score will influence your purchasing power. In most situations, the dealer will prequalify you for a specific amount. Once you have an approved amount, you can choose any vehicle up to that price point. Therefore, you can buy any car you want within your budget.
Used car dealers, especially those offering in-house financing, know how to turn a phrase. While the process is frustrating for many consumers, there is nothing inherently illegal about what the dealers are doing. Even if their practices are, in some ways, ethically questionable.
Loan and Financing Programs at No Credit Check Car Lots
People with bad or no credit will typically become familiar with terms like subprime auto financing or no credit check auto loans. For people with bad credit, subprime financing is a decent solution. The lender will need to review your credit report, but it will also check outside factors like income and employment history.
The primary benefit of subprime financing is the easy monthly payments paid directly to the dealer. Subprime financing is often called in-house financing.
No credit check auto loans are also called guaranteed auto loans. But there is still a chance you will be denied. While no credit check options will still review your credit score, the lender puts more emphasis on proof of residence, income, and employment.
While nearly everyone qualifies for guaranteed auto financing, most lenders require consumers make above a specific income threshold for approval. Essentially, a car dealership specializing in in-house financing wants to make sure you can cover the monthly payments.
Remember, the dealers are taking on the majority of the risks when lending to someone with no credit history or bad credit. Therefore, some restrictions are made in the approval process as protection.
Pros and Cons of No Credit Check Car Lots and Loans
There is a multitude of no credit check car lenders because the risks are not as significant as with other loans, such as mortgages. Additionally, these lenders can offer more flexibility in terms of:
- Financial backing
- Interest rates
- Loan length
- Repayment terms
Additional benefits of a no credit check loan include a simple application process with quick pre-approvals and no down payment options. However, most lenders will require proof of income and permanent address before approval.
Unfortunately, despite the advantages of such a loan, no credit check or subprime options represent the most expensive ways to purchase a vehicle for some borrowers. The expense comes in the form of high-interest rates designed to recoup any potential losses for the lender when lending to deep subprime borrowers.
According to a recent Experian report, borrowers with a FICO score of 720 or higher receive an average APR of 3.65% on new car loans and 4.29% on used cars. Subprime borrowers with a FICO of 579 or less receive average APR quotes of 14.39% to 20.45%. However, interest rates can reach as high as 36%, depending on the borrower.
Other Loan Options for Those With Zero or Bad Credit
While no credit check car lots can seem tempting to people with bad credit, most people find the loan options to be bad ideas upon further research. Thankfully, there are other options for people with poor credit: credit unions, personal loans, co-signer, etc.
While traditional banks typically have restrictive guidelines and requirements, credit unions offer lower rates with fewer restrictions. For instance, federal credit unions cap interest rates at 18%.
Additionally, you can find many private lenders online specializing in bad credit loans, meaning a personal loan is possible. Some online lenders will approve up to $5,000 without running a credit check. Many used cars will cost more than some loan limits, which means you will need a second loan or financing option.
Using a co-signer can improve your chances of getting approved for a loan because it increases the lender’s confidence for on-time payments. However, accepting a co-signer means their credit is also on the line if you miss payments or default.
Payday or Car Title Loans
Finally, you can look for payday or car title loans. Both are not ideal because they are short-term solutions. Due to the short repayment period of payday loans —30 days — the APR is often astronomical, upwards of 400%.
Title loans or collateral loans will also carry high-interest rates. But the more concerning aspect of the loan is the lender can repossess the vehicle upon missed payments. Because the car is the collateral, the lender is more willing to approve a loan for a car’s value regardless of an applicant’s credit.
While transportation is essential, it is crucial you look for fair financing options. While no credit check car lots provide loan programs, these lots are best left as a last resort when you have bad or no credit. You are better off seeking financing through traditional channels or online lenders.
If you cannot get approved on your own, reach out to friends and family to see if anyone can co-sign the loan for you.
If you have no other option than no credit check car lots, you might want to take a step back and think of ways to improve your credit. While you need a car, it might surprise you how fast you can start to repair your credit. Our guide — the Fiscal Tiger Credit Repair Guide — will walk you through all the steps you need to know to get your credit score going in the right direction.
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