“No credit? No problem. Get a car today with no credit check!”
Ads like these looks pretty tempting when you’re in need of transportation and believe your credit score is a liability rather than an asset. However, even if it is, you don’t necessarily have to prostrate yourself on the altar of predation.
You still have options. Let’s take a look at no credit check loans, vs. subprime loans.
First, You Have to Know Your Credit Score
You’re entitled to one free peek at your credit report each year. Get a copy of your credit report before you begin shopping for a car.
Review your score and your credit history. It’s possible for your report to contain issues that aren’t of your making that are dragging your score down. Credit reports have errors on them all the time. If yours has them, do everything you can to get them fixed before you start applying for loans.
If your credit score is 700 or higher, you can buy a car anywhere you’d like and get a decent interest rate. If your score is 640 or lower, you’ll be looking at a subprime loan.
What Is a Subprime Loan?
Subprime auto loans were created specifically for people with lower credit scores or have limited credit histories. Perfectly legitimate, subprime loans carry a higher rate of interest than regular loans because lenders consider borrowers with low credit scores (or minimal credit histories) more of a risk.
The upside of subprime car loans like those offered by RoadLoans is you can get a car from a reputable seller, even if your credit rating isn’t pristine. Yes, you’ll pay more for the car in the long run because your finance charges will be higher. However, if you make your payments on time for a year or so, you can often refinance into a conventional loan with a better interest rate.
This is possible because lenders report subprime loans to the credit agencies just like any other loan. If you handle the loan responsibly your credit score will improve, and you’ll eventually qualify for a better interest rate.
What Is a No Credit Check Loan?
In most cases, no credit check loans are administered by the entity selling the car. “Buy Here, Pay Here” used car lots work hard to attract people with no credit history, or with low credit scores.
Shoppers who are in these situations think they can’t do any better, so they settle for whatever terms the seller puts forth—just so they can get the car. However, this will open you up to all sorts of unscrupulous activity. First, you will inevitably wind up paying more because of the exorbitant finance charges the dealer will impose.
Further, because you’re a “captive buyer”, there is no incentive for the seller to lower the price of the car. They’ll imply they are your best option because you won’t qualify for a loan anywhere else. If you believe them and go for it, you’ll be stuck. This is why it’s crucial to review your credit report before you begin shopping.
Additionally, these lenders don’t usually subscribe to the credit reporting agencies, so your payment history—even if you handle the loan responsibly—won’t get reported to them, which means it does nothing to improve your score. This could conceivably trap you into being forced to always buy your cars this way.
Yes, there are certain situations in which you may have absolutely no other choice. But you should always do your homework to be sure that’s your only play before you make the decision to take a no credit check loan vs. a subprime loan.