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No Credit Check vs. Subprime Auto Financing

As someone with no credit or bad credit, you have options to get approved for a car loan. But before applying for such loans, here's what you need to know.

What is a no credit check auto loan?

No credit check auto loans, also known as guaranteed auto loans, are sometimes offered by dealerships that specialize in lending to people with no credit or bad credit. Instead of basing financing terms on your credit history, these types of auto loans will look at things like your employment history, income and proof of residence to ensure that you can afford to pay an auto loan. Almost anyone qualifies for guaranteed auto financing, but you will usually need to make above a certain income in order to be approved.

Subprime auto financing

A subprime car loan can be a good option for anyone who has a low credit score, an inconsistent credit history or no credit history. While you generally need to have a credit check in order to qualify for a subprime auto loan, the lender will also take into account other factors such as income and employment. One of the benefits of subprime auto financing is simple monthly payments. In some cases, your monthly car payment amount can be paid directly to the dealer who you bought your car from, often without working with a third party. This is called in-house financing.

No credit check vs. subprime auto loans

When looking for an auto loan with no credit or bad credit, keep in mind these differences between guaranteed and subprime auto financing.

  • Credit checks: One of the main differences between these two types of financing options is if your loan will be personalized to your credit history or based solely on other factors
  • Interest rates: To find the lowest interest rates and best auto financing options for your situation, take time to shop around, compare rates and ask for multiple quotes. It’s possible that a no credit check auto loan may come with higher rates.

When comparing no credit check vs. subprime auto financing you'll want to shop around and choose the one that you feel best fits your financial situation.

Establishing Your Credit

Getting an auto loan at a good interest rate depends on your credit history--no credit auto loans and no credit financing can be hard to find, so it's important to start establishing credit as soon as you can. If you're starting from no credit, here are some considerations.

  1. Check your credit report. You can get a copy of your credit report from one of the three major credit bureaus (Experian, Equifax, and TransUnion). Check to make sure you truly have no credit history--a gym membership or a student loan from the past may already be there. Or if there's a false credit report open in your name when you should have no credit, contact the credit reporting agencies immediately.
  2. Take out a loan or get a credit card. Banks and other lenders may offer small loans, even with no credit.
  3. Pay your bills on time--and put them in your name. Many major utilities, internet, and phone providers are beginning to report all payments. You can call your provider to see if they do, and even if they don't, you can request a letter of reference to show a potential creditor when you're applying for a loan.
  4. Open a bank account. Having a good relationship with your bank or credit union can pave the way for financing opportunities even when you have no credit.
  5. Keep your job. Employment, along with credit score and history, is required by most lenders, and many prefer to see one employer especially if you're applying for no credit financing. If you're not working, you'll have to have another source of income to apply for financing.
  6. Use your credit regularly and responsibly. Your credit is an ongoing process after you take off from no credit, and it's important to maintain it. Pay your credit cards and loans on time, and check your credit reports every year for mistakes or discrepancies.
No Credit vs. Bad Credit Financing

What do people with no credit and bad credit have in common? Both groups of consumers may struggle to find financing for an automobile purchase. However, there are other non-traditional options available. Here's how the financing is different:

No credit car financing

If you’ve been denied an auto loan because you have no credit or minimal credit history, you may want to consider a dealer that specializes in no credit car financing. No credit car dealers understand that you are a credit newbie and may be willing to take a risk on you in exchange for a higher return in the form of interest.

Bad credit car financing

Having bad credit isn’t the end of the world, but you may find it difficult to secure financing. Since lenders can see how you handled debt products in the past, they may not be convinced that you’ll treat their loan any differently. The good news is that there are lenders that specifically focus on financing with bad credit.

How to Get an Auto Loan with No Credit

Owning a car these days is a basic necessity. We need it to commute to our jobs so we can pay the bills and take our kids to school and other social activities. What happens when you're trying to buy a car but don't have any credit?

Having no credit means that you simply don't have a history of borrowing funds and repaying them over the long-term. It's not that your credit is good or bad, it just doesn't exist yet.

If you're hoping to get an auto loan with no credit, here are a few steps to take. Consistently making on-time payments on a car loan will help increase your credit history over time. This will in turn, assure lenders you know how to manage credit and get you on the right financial path.

Step 1: Put at least 10% down

When trying to get an auto loan with no credit the more money you can put down the better. The lender will view you as less of a risk and help find you a great deal on a no credit auto loan.

At the very least you want to pay a 10% down payment, but obviously if you can pay more, then do so. Any amount you pay upfront will mean less interest and fees you'll have to pay over the lifetime of the auto loan.

Step 2: Shop around and negotiate

Just because you have no credit doesn't mean you don't have options. Before taking out an auto loan with a local dealership, check with area banks and credit unions or dealers who specialize in no credit auto loans. Shop around and get financing offers from different sources in order to be sure you're getting the best rates and terms.

Credit unions and local banks are smaller and therefore may be a bit more flexible on their auto loans and open to working with individuals directly. Search for financial institutions who often issue loans to newer borrowers. Buy Here Pay Here lenders specialize in no credit and bad credit auto loans and may give you the best loan terms after being turned down from a traditional lender or dealership.

Talk to different dealers and bank representatives to see who is able to offer you the best loan options and interest rates. Securing a no credit auto loan will often come with a higher interest rate but may help build credit for better terms on future loans.

Step 3: Reduce the length of the loan

Choose a monthly auto loan payment amount you can easily afford. Pushing out a car loan may help reduce your monthly payments, but it could force you into a financial bind in the future.

Having a shorter loan term will also allow you to save money on interest payments, as well as reduce your perceived risk to a no credit financing dealer.

Step 4: Find a cosigner

If you find that you're still having issues getting approved for an auto loan, you may want to consider finding a cosigner to help. Ask a close friend or family member to cosign the loan with you, putting you as the secondary borrower. This will help boost your attractiveness to lenders and no credit car dealers.

Make sure you go over all of the details of your loan with your cosigner and make your payments on time to avoid a hit to both of your credit scores. Clarify the details of your auto loan so there are no misunderstandings.

Step 5: Bring proof of employment

While shopping around for an auto loan with no credit, bring proof of your current, or future, employment as this may help your case. A buy here pay here dealer, for example, will view your income as a means of paying back your loan.

Your employer could also be a good character reference, as well as any past employers. So, bring any copies of past tax returns or pay stubs to help reduce your risk as a potential buyer.

There are plenty of no credit car financing options and lenders who will give an auto loan to first-time borrowers. You just have to be patient and take your time negotiating the best deal.

All information provided on this site is for informational purposes only and may have come from other sources. DriveTime makes no representations as to its’ accuracy or validity, and it is provided on an as-is basis.
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