To the unsuspecting, no credit check auto loans can seem like an interesting idea. They skip the whole process of a credit check with guaranteed financing, offering buyers the lure of fast, risk-free auto purchases. However, companies that offer an auto loan with no credit check are far riskier than they might appear. The apparent convenience of providing no credit check car loans allows them to charge far more money than otherwise. They can trap customers into high rates and might have special security devices in the car that impose on the customer’s privacy.
The credit check, while irritating and embarrassing to customers, is an important part of the auto loan process. Credit checks let the lender know how credit-worthy the borrower is. This information then effects how the lender structures the loan. The interest rate, down payment, and length of the loan all depend on the credit score of the borrower. This is true for any loan, but especially so for auto loans, which are some of the largest loans any consumer will take out.
No credit check car loans remove this information about how likely the borrower is to repay the auto loan. As a result, the lender needs to treat everyone as if they were an extremely risky lender. Everyone who applies for no credit check car loans will get the worst possible loan terms. The interest rates on such loans will be the highest in the market. The lender does not want to run the risk of having to repossess the car, the risk of losing the car, and the uncertainty of not being able to trust the lender.
That is why they charge such high rates. They do it as a compensation for the extra risk. Of course, that is a bad thing for no credit check car loans lenders. They get treated like they have the worst possible credit score. The monthly payments for no credit check car loans will be higher than through any other source of financing.
The problems don’t end there. No credit check car loans will also require a larger down payment than any other financier. The reasoning is that the lender does not know if the borrower will be able to pay back any of the loan at all - they could default before the first payment. That would force the lender to repossess the car right away. To repossess a car is an expensive process.
No credit check car dealers and lenders need to set the down payment large enough so that it can pay for the cost of that repossession process. Otherwise, the lender could make a loss on the loan. The down payment needs to cover that risk and also provide the lender with some profit, just in case the down payment is the only money the lender will ever receive from the borrower.
A traditional car loan provides the borrower with an opportunity to prove how credit-worthy they are by paying back the loan. Even if they start out with a poor credit score, making their payments every month and successfully completing the loan is a strong signal that they are trustworthy borrowers, and their credit score will increase. This is just like paying off a credit card- it is a sign of financial responsibility.
Getting a car loan paid off is a way to bring a credit score up again. But for car loans without credit check policies, the lender does not report the transaction and its history to the appropriate credit authorities. As a result, despite all the hard work of paying off the loan in full, and the fact that paying off the loan is an uphill battle due to the poor terms, the borrower won’t be able to improve their credit score. The loan does not enter their credit history.
The credit bureaus won’t know the loan ever occurred. Even though the borrower managed to pay off a very expensive loan, the loan won’t affect their official creditworthiness. Car loans are not just a way to own a car. They can act as a bridge to other loans, such as home mortgages, student loans, or credit cards. A person’s credit score reflects their recent use of credit. But because no credit check loans never enters a credit report, it can’t improve the borrower’s credit score.
The bottom line on no credit check car loans is that they add a lot of cost and remove a lot of benefit compared to a regular auto loan. Even someone with bad credit would do better going the traditional route and taking out a loan through a lender that will perform a credit check. Credit checks are much easier and less invasive to perform now than they used to be. They don’t even need an in-person appearance, which removes the embarrassment of a public rejection. Credit checks can be performed over the Internet.
At the very least, a loan that requires a credit check will appear on the borrower’s credit history, so paying off the loan on time will go a long way toward repairing their credit.
At Valley Auto Loans, we have connections to sources of financing like banks and other institutions that specialize in extending credit to borrowers with poor credit scores. We know that nobody has total control of their financial situation- sometimes bad luck can damage a person’s credit, even when they are responsible. We can connect anyone with an institution willing to lend to them, which is the first step to credit score repair. We also can find loans with the best possible terms, so that nobody has to pay more than what they should, both for the down payment and for the monthly payment.
Valley Auto can find a lender for almost every applicant, which is valuable not only to those with bad credit but to people who are just starting out on their own and don’t have any credit history at all yet. Many lenders are afraid to take a chance on such untested borrowers, but we are confident that we can find you a lender willing to offer you an auto refinance or loan at a low rate instead of high interest no credit check auto loans.