Those who need a newer vehicle when their incumbent dies but have bad credit dogging them do not have to forget the idea. A no credit check auto loan is possible in many places, provided the buyer is willing to settle for somewhat less than an ideal vehicle on his or her way back to financial cleanliness and to perform extra due diligence in choosing the dealer who will finance the vehicle.
Nearly all no-credit-check auto financing—known alternatively as second chance financing—is done through the seller directly. To offer one example, there are over one hundred such dealers in Las Vegas, Nevada alone. They promote themselves typically as able to offer financing even if all you have for credit support is your job. Their signage and advertising typically reads slogans such as “No Credit! No Problem!” or “Your Job is Your Credit!”
For the most part, these dealers operate reputably enough. They will finance either directly with you or through one of a very small group of lenders, usually related to the dealer in a direct business operation, and they will usually ask for anywhere from $500 to $1,000 down before agreeing to the deal—depending on the vehicle. The older the vehicle, the less money you may have to front, though there may be occasional exceptions.
However, financing a replacement vehicle through these dealers is not the same as financing a new car with clean credit. Nearly all bad- or no-credit auto dealers will call for shorter loan periods than the typical five- to six-year terms of the new-car dealers dealing with clean credit. Some bad- or no-credit dealers will arrange loans for two-year terms, sometimes three, but almost never longer than that. This may mean monthly payments a little higher than you might expect, even allowing for interest and finance charges. You may find a solid enough used car with, for example, a $4,000 drive-it-off-the-lot price, but you may find that the dealer who is willing to work with you will only offer you a two-year loan. Before interest, that equals $333 per month.
Once you have found the vehicle, the dealer, and the deal to your liking, you should arrange to have a reputable mechanic check the car thoroughly before you sign the papers. A reputable dealer should allow this inspection, especially knowing it will not cost him anything to let it be done. For better or worse, the used-car-salesman jokes continue to apply to some dealers, and you could end up having bought a car that will die before you finish paying the loan. You should also be able to obtain the vehicle’s history by way of CarMax or similar automotive reporting agencies that keep track of vehicle histories—especially vehicles which may have had engine or major structural damage in their past. Even if the deal looks better than affordable for you, cars with that kind of damage in their pasts may not have the basic reliability you need for the money you are about to invest.
Because this is second-chance financing, diligence in making your payments is even more critical than it would be for a standard financing package. If by circumstances beyond your control, you may have to be late with a payment or skip a payment, be sure to inform your dealer enough in advance that it will not hurt the credit rating you are trying to rebuild. With many second-chance-financing auto dealers, they will simply start your good-credit-reporting period over again at the point when you make the late or skipped payment, with your previous payments no longer counting. Since many will use a small minimum of consistent payments to report positively to the credit agencies, one late or skipped payment should not hurt you in the long run.
This leads to one of the most important considerations you should make before going shopping for a second-chance auto loan—make sure the dealers who have the deals you want to choose from will report to the major credit reporting agencies. Second-chance financing is just that: a second chance to repair and re-establish your credit worthiness. It will mean nothing if your deal does not include the seller reporting your solid performance to the reporting agencies.
Financing