If you’ve been browsing car dealership websites and wondering why you never quite get the “yes” you’re looking for in car loan applications, it might be time to look for another way. Internal financing or subprime loans may be the answer you are looking for when you need to buy a vehicle and have bad credit.
Internal financing is a type of loan made by a person or entity who both finances your loan and sells the car to you. These lots of used vehicles are most often called buy here pay here (BHPH) car lots or tote the dealers note. They can be a convenient one-stop-shop for borrowers with bad credit who need a car loan fast.
Here’s a quick breakdown of what you can expect from an insider funding bundle:
- The concessionaire is the lender
- Many don’t check your credit
- Service often the same day
- Fewer approval requirements than subprime lenders
- They only sell used vehicles
- Generally higher interest rates
- Proof of income and ID required
- They require a down payment, which can be around 20% or more of a car’s selling price.
- You may need to make payments in person, sometimes weekly or bi-weekly
- Not all report loans or payments on time to credit bureaus
Internal financing doesn’t rely on third-party lenders like dealerships do, so the process can be faster. In many cases, you may be able to drive away with a new vehicle the same day. But, the price to pay for not having a credit check done when trying to qualify for a car loan often comes in the form of higher interest rates, a larger down payment requirement, and possibly a longer loan term.
And, since not all of these lenders report your timely payments to the credit bureaus, a self-financed car loan may not improve your credit score.
Internal financing vs subprime loans
Borrowers with poor credit can turn to in-house financing dealers or special financing dealers for their next car loan. Both offer options for borrowers with less than perfect credit, but there are major differences.
The biggest difference between the two types of financing is that internal financing is not dependent on your credit score at all, unlike subprime lenders. However, subprime lenders don’t make your credit the ultimate solution.
They are more concerned with proving you have the ability, stability, and willingness to take out a car loan. They also report your loan payments on time to major credit bureaus, which can improve your credit score.
Payment history is the part of your credit reports that has the biggest impact on your credit score. So having a positive long-term payment history on a car loan can build your credit so you can qualify for better rates and credit terms in the future.
Breakdown of subprime loan options like this:
- Lenders are a third party, working only through dealership special finance departments
- Interest rates are higher than those of good credit consumers
- Lots typically sell new and used vehicles
- Your credit is checked
- Documents are required to prove that you meet the lender’s requirements
- At least 10% of the sale price of the car or a minimum of $1,000 down payment generally required
- Vehicle selection limited to approval amount
- Timely payments are reported to major credit bureaus: Experian, TransUnion and Equifax
With hard work and a car loan from a subprime lender, you may not need to rely on car lenders with bad credit in the future. A better credit score can expand your vehicle options even further and help you qualify for better interest rates on future credit opportunities.
Let us help you get your next car loan
Whether you choose to go with an insider funding package or a subprime lender is up to you, but be aware that insider funding often offers a good second chance if you’re turned down by a subprime lender. If you’re starting your search for another car, we want to help.
You can skip the research altogether by letting us be your guide. To Auto Express Credit, we’ve been matching consumers with dealers who specialize in financing, including some with in-house financing options, for over 20 years. We want to help you find a dealer in your area who can provide you with the vehicle you need.
To get started, all you have to do is fill out our quick, free and non-binding form. car loan application form. After that, we will immediately get to work for you!