THE NO JOB LIFESTYLEThe two main types of dealer
- Special finance dealers: often franchised stores with a finance team that sends your application to lenders who accept lower scores. Loans are usually from outside lenders and commonly report to the bureaus.
- Buy here pay here lots: the dealer itself is the lender. Approval can be easier, but rates are often high, cars may be older and some of these lots do not report on time payments at all.
- Second chance programs: a marketing term that can mean either of the above, so ask what the phrase means at that dealer.
Questions to ask before signing
- Do you report this loan to Equifax, Experian and TransUnion, and can you show this in writing?
- Who is the actual lender, and what are the APR and total of payments?
- What is the out the door price, including fees and add ons?
- Is a GPS tracker or starter interrupt device installed on the car?
- What happens if a payment arrives late, and how soon can you repossess?
- Is the sale final, or has the financing been fully approved, or could you be called back to sign new terms?
The Truth in Lending disclosure shows the APR, the finance charge and the total of payments. Read it carefully instead of focusing on the monthly figure. A long term can make a costly loan look affordable.
Get an outside offer first
Before visiting a dealership, apply with a credit union or an online auto lender. Even at a higher rate, a preapproval gives you a number the dealer has to beat. Auto loan inquiries made in a short shopping period generally count as one for scoring purposes. The window ranges from 14 to 45 days depending on the score version, so keep your shopping tight.
A larger down payment can lower your rate and reduce the chance of owing more than the car is worth. Choose a car that fits your budget rather than the most you can be approved for. Payment, insurance, fuel and repairs all matter, and a repossession would set your credit back much further than having no loan.
Making the loan work for your credit
Once you have the loan, set up automatic payments or reminders and pay every month by the due date. Check your reports after 60 days to confirm that the account is appearing with the right balance and status. If it is not listed, contact the lender and hold on to your payment records.
After 6 to 12 months of on time payments, your score may be in a better place, and it may be worth looking at refinancing with a credit union if rates have become more favorable. Check for any prepayment fee first. An installment loan paid on schedule adds to your credit mix, but do not take one on only to raise a score.
Questions people ask
Do buy here pay here dealers report to credit bureaus?
Some do and many do not. Some report only negative events like repossession, so get the answer in writing before you sign.
What down payment do these dealers want?
It varies, and many ask for $500 or more or a share of the car price. Lenders may ask for proof of income and residence too.
Can you get a car loan with a recent bankruptcy?
Often yes, though rates tend to be high. In an open Chapter 13 you generally need court or trustee permission first.