What is in-house auto financing?
First, let’s make sure we are talking about the same thing. In house car financing just means that the car dealer takes the place of the lender to provide a loan for car buyers.
Car buyers with poor credit deciding to purchase a new vehicle can finance from in house financing car dealers directly. You pay for the car directly to the car dealer.
This type of in house financing is also called Tote-The-Note, Buy-here-Pay-Here, In-House dealer financing, and many other catchy phrases.
The in house financing car dealers will carry the loan until it is paid off or refinanced. In most cases, the loan history will not be reported to any credit agency.
In-house lenders exist for two reasons. Simply put, dealers need to sell the less desirable cars that people trade in, and many people are shopping for cars that get turned down by lenders because of bad credit scores.
Unlike traditional car loans, in house financing car dealer’s auto loans are usually structured for weekly or bi-weekly payments, depending on how often the borrower gets paid.
Their ability to get credit is based on their job.
In house financing for customers
With in house auto financing or “guaranteed auto financing,” there’s no reliance on the major credit reporting bureaus.
Car buyers who are looking for seller financing only need proof of income and steady residency to qualify.
Traditional lenders refuse loans because the applicant is not credit-worthy based on credit reporting agencies. In house financing, dealers are car dealerships that finance anyone regardless of your credit.
Car Dealerships That Finance Anyone
In house financing dealerships offer guaranteed loans and are a type of special financing tote-the-note loans.
They require pay stubs or proof of income for at least two years of continuous employment, professional references, down payment of at least 10 percent.
Many dealerships that approve bad credit loans will require a larger down payment than average to cover the risk of the investment.
In House Financing Car Dealers Sell The Less Valuable Cars
In-house dealer financing options hit a growth spurt in the wake of the economic downturn. In house financing car, dealers exist for two reasons.
There was an increased need to find a way to secure car loans for people with damaged credit, often through no fault of their own, due to job loss, illness or divorce.
Working people with bad credit found themselves asking the question,
“How can I get back and forth to work if I do not have a car.” This also created an avenue for dealers to sell the less desirable cars that they have taken in trade.
These cars are sold to buyers that because of their credit history, don’t have the ability to secure a loan for a better quality car.
Don’t be misled by what appears to be a good price and think you are getting a great deal with dealer to customer financing.
Who Uses In house financing Car Dealers?
You are considered to have below average credit if your score is between 600 and 550.
Those who cannot get a traditional or even a bad credit car loan will consider shopping at one of the in house car financing lots. In house auto financing can sound pretty good.
However, if you’ve been turned down because of poor credit, no credit, a past bankruptcy, or you are a first-time buyer, you still need to get to work, right?
People who have been turned down by traditional lending institutions make up most of the customer base for in house financing options.
You may be looking for a car because you had an accident and the car is a total loss.
You need to replace it, but you cannot get financing, and you did not plan on shopping for a car.
Before you go car shopping at in house financing dealerships, you should apply online with Valley Auto Loans to get pre-approved for a set price before you shop.
If you do not qualify for a bad credit loan
If you’ve gone from a good credit score to having damaged credit, it may be difficult to accept that you no longer qualify for the best rates for a car loan, or even for approval.
Once you’ve exhausted the traditional lending institutions when you start shopping for a new auto loan, you will find there are high risk auto loan lenders out there who specialize in subprime auto loans.
You can avoid in house financing by getting a loan that will help your credit. Some dealers out there are also willing to take a chance on someone with less than perfect credit if they have good job status.
How Does In House Financing Work?
Your car shopping experience begins by meeting the in house financing car dealers finance manager to get an idea of what you can afford and what your payments will be.
With that information, you can confidently look at the cars within your price range and make your choice based on your budget.
You know where you stand financially before you shop and are less likely to be distracted by that “beauty” on the lot that catches your eye.
Focus. Stay within your budget. If you do not have a monthly budget or are struggling to come up with a down payment, you need to check out our resource page.
You will find helpful tips on many financial questions like setting up a budget to help put together a down payment.
There is even information on how to plug a flat tire or how to use jumper cables to start a dead car battery and more.
Know The Facts
A car dealership makes almost 25% of its money at the closing table, and most of this comes from playing off of the excitement of the buyer.
To avoid pitfalls of financing at the dealership, read everything you sign to help eliminate deceptive practices or in-house financing car dealers that can damage your situation further.
Pay attention to the term length of the loan.
A longer term may reduce your payments, but in the end, you will end up paying more interest. You have to decide what’s best for your situation. You could even end up owing more than the car is worth.
In House Financing Car Dealerships And Interest Rates
The interest rates are higher than traditional loans because the in-house lender in assuming a risk when others will not, but if you negotiate purchase price instead of monthly payments, you will be ahead of the game.
You can often lower the interest rate by increasing the down payment.
Personal loans and unsecured loans are loans that do not require collateral such property.
These loans do not require a down payment because they are not secured with anything more than a signature. That is why these loans have the highest APR of typical loans.
On the other hand, you may want to negotiate a lower down payment.
You may be in a bind coming up with the money for a down payment.
Reducing the down payment can help cover the additional expenses associated with buying any car, like tags and insurance.
What Is a Zero Down Car Loan?
Most car loans, even in house financing car dealers, require at least a small down payment. In order to cover this minimal requirement, dealerships can accept the value of a trade as the down payment.
If the trade-in does not cover the down payment, they can give the full amount and roll over the remainder into the loan.
It is always a good idea to make the best down payment you can. So that later, when you want to sell or trade, you don’t find yourself “underwater” because of the zero down loan that looked good at the time but it’s not if something happens to the car.
What Are The Benefits of In House financing?
With in-house financing dealerships, you get the financing you need quickly.
You find the car that fits your budget and often drive away the same day. It is a great option if all you want is a car and are not concerned about the actual cost you will pay over time.
Auto Refinance Can Be An Option
In most cases, with a year of on-time payments, auto refinancing is an option.
Often, a lower interest rate is possible, or a change in the length of the term of the loan. If you are in better financial shape, you might want to shorten it to pay it off sooner.
If you are still having financial difficulty, you might want to consider extending the term to lower payments.
Again, you will pay more interest in the long run but will be able to afford the monthly payments.
It Can Be The Only Choice
As a last resort, you can use in house dealer financing correctly without falling victim to straw purchase traps.
For those who are just starting out and have no credit or for those who are coming out from the other side of bankruptcy, in-house loans are a reasonable alternative when it seems no others choices exist.
Easy Approval Process
The approval process for no credit car loans is easy. In some cases, your in-house lender does a credit check.
If the loan is approved based on reporting to credit agencies, your on-time payments will improve your credit rating, but this is most often not the case.
Will This Repair My Credit?
Ask if they do a credit check. If you are trying to improve your credit rating, there are things you can do to get your credit score up.
Keep in mind that most in-house financing does not depend on credit reporting agencies for approval and won’t help you repair your credit.
In most cases, an in-house loan is not reported to those agencies.
These companies do not report your good payment history so even if you pay the loan off “as agreed and on time,” that information will not show on your credit report.
It is not necessarily a bad thing, but you need to know where you stand with in house car loans.
The best subprime auto lenders know that subprime auto loans can be used to rebuild credit when you cannot qualify for a typical car loan.
In house financing car, lots can add cost in the form of higher interest rates, and often doesn’t improve your credit score, but there are other avenues to pursue to improve your credit rating
. For tips on other ways to improve your credit score, go to MyFICO.com.
Bad Credit Auto Loan vs. Car Dealerships That Finance Anyone
Bad credit auto loans, also known as 2nd chance auto, is a sub-prime loan granted by a lender that specializes in high-risk financing.
Bad credit auto loans are very similar to traditional loans. These lenders usually have a partnership with dealers that allow them to review customers that could not be approved otherwise.
The process works something like this:
- A customer enters the dealership looking to purchase a vehicle.
- The dealer will process a credit application for the customer with preferred lenders.
- If approved, the customer will receive a “good credit” loan.
- In the event they are denied, the customer’s application moves to a bad credit lender for review.
- If the bad credit lender accepts the customer, the customer will receive a bad credit loan.
- If you already know your credit score is low, you can get approved for a bad credit loan amount before you make a trip to the car dealer. This saves you the embarrassment of being turned down after you pick the car you want.
Advantages of Bad Credit Auto Loans
An enormous plus about bad credit auto loans is that the lender will make monthly reports to all three major credit bureaus regarding your payment history.
As long as you make all payments on time, your credit score will gradually improve over the life of the loan. This will make it extremely easier to secure future loans such as a mortgage.
You will also be able to choose from both new and used cars, and major franchised dealerships also offer bad credit financing to customers.
This gives you the ability to shop at almost any dealership of your choice and purchase any vehicle you can afford.
These special financing loans also remove some of the difficulty to qualify for a car loan with a low credit score.
Final Thoughts
After you build up your credit score, you can refinance your loan for a lower interest rate.
That way you do not have to carry the high-interest rate for the full term of the loan.
Valley Auto Loans offers complete auto financing and can help find the right vehicle for you, even in these difficult times.
In house financing does not have to be your only choice when you have a low credit score.