Understand Your Options when Car-Shopping with Poor Credit

August 6th, 2015 by

A saleswoman is showing a man through a car showroom.

If you have poor credit or little in the way of credit history, then you might be worried that getting a car is impossible for you. In reality, while bad credit can create some complications in getting a car, it definitely doesn’t make it an unattainable goal. You still have options available to you when trying to get a vehicle, including choosing a Buy Here Pay Here dealership as well as looking for bad credit car loans in general. If you haven’t tried to get a car loan with poor credit before, however, then these terms can get pretty confusing.

Today, we’re going to take a look at some of your options when you’re shopping for a vehicle with poor or very little credit. Though it will impact the kind of car you can get, as well as the long-term payments and expenses while owning your vehicle, bad credit doesn’t make getting a car impossible. The right solution for your situation really depends on the specific nature of your credit, your income, and other factors. But we’ll take a general look at what’s available to you, so you have a sense of some of your best options.

What Is a Buy Here Pay Here Dealership?

First up, let’s look at what a Buy Here Pay Here (BHPH) dealership is and how it can help you get a vehicle if you have poor credit. The traditional way to get a car loan in the past was to go to a dealer, find a vehicle you want, and then the dealer would help you find a loan from a third-party. These lenders could be banks, credit unions, or other financial institutions primarily involved with lending people money.

At a BHPH dealer, however, they will not only help customers figure out financing through a third-party lender, but they can also offer loans themselves. Rather than getting a loan from a bank or similar lender to pay for your vehicle, the dealership itself gives you the loan, and you pay them directly over the following few years. This simplifies the process and allows dealerships to guarantee loans for people with poor credit since there’s no bank involved that can deny the loan. So you buy the vehicle at the dealer and pay off your loan at the dealer – hence the name.

Two hands are shaking over a blue toy car, car keys, and paperwork at a buy here pay here dealership.

What Are Bad Credit Car Loans?

Bad credit car loans, in general, are simply any car loan offered to someone with poor credit. While the term specifically mentions “bad credit,” these kinds of loans can also be an option for someone who lacks much of any credit history. Although it’s not always as problematic as having bad credit, a lack of credit history can also make getting a loan tough since you haven’t yet proven that you’re good at paying loans back on time.

These kinds of loans are offered by banks or other institutions willing to take a chance on providing a loan to someone who has had trouble paying off loans in the past. Since the risk is greater than when lending money to someone with good credit, they typically charge higher interest on the loan in order to better ensure they will at least get the initial loan (called the principal) back. It may seem unfair that people with bad credit have to pay more in interest, which is understandable, but it is often necessary for businesses to be willing to take the risk of making such a loan in the first place.

What’s the Difference Between BHPH and Bad Credit Car Loans?

As you can see, BHPH refers to a type of dealership that provides loans directly to some of their customers, while bad credit car loans refer to any type of loan that is offered to someone with poor or very little credit history. While they’re not the same concept, they are certainly connected because many BHPH dealerships offer bad credit car loans as a way to help their customers that are unable to get a loan from a third-party lender. So, you’ll often hear these two terms used a lot together, but they’re not interchangeable.

However, keep in mind that not all dealerships offer BHPH financing since it requires the dealer to have a lot more cash-flow, and it means the dealer takes on more risk in making such loans. So if you need a car loan and know that you have poor credit, then specifically look for a BHPH dealer to make the process of buying a car easier for you. As we said before, it really comes down to knowing what your specific financial situation looks like and then choosing a dealer and lender that meets your needs and can work with you.

A happy couple are holding car keys and leaning on a black SUV.

How Can I Improve My Credit?

Having bad credit can feel like an impossible challenge to overcome, but fortunately, there are actually a lot of different ways you can start improving your credit. Just keep in mind that you don’t need to do all of these things at once, and you need to make sure you stay on top of your finances. Missing payments or defaulting on a loan because you found yourself stretched too thin financially will just end up doing more damage to your credit score.

Some good ways to improve your credit score include:

  • Use a credit card regularly and pay it down, on time, completely.
  • Get a bad credit car loan from a reputable lender or a good BHPH dealership and make payments on time! One thing to note is that not all dealers will report payments to a credit agency, so make sure you choose one that will report your on-time payments and help you build your credit.
  • Pay off any outstanding loans you might have, or set up a repayment schedule that you can meet and make payments on time.
  • Don’t apply for new credit cards or other loans too often, as this can be considered risky behavior that negatively impacts your credit.

As you can see, there are some very simple ways that you can help get your credit score to a better place, but it does take some work. You’ll notice the recurring theme in those various tips is to make payments on time! This point really can’t be overstated because late payments will negatively impact your credit. Making payments on time – or early if you can – will not only help you avoid late fees and other charges but will actively improve your credit score.

The big picture when it comes to credit can seem overwhelming, but it’s really pretty simple. Your credit score is a way for lenders to see how much of a risk you represent when giving you a loan. If you make payments on time, keep your overall debt as low as you can, and don’t stretch yourself too thin, then you look good to a lender.

Let McCluskey Automotive Help

Have bad credit or little credit history? We can help you figure out the best way to pay for your next vehicle. Whether you’re looking for a new car, a pre-owned model, or simply feel lost and need answers to understand what your current situation is, McCluskey Automotive is here for you. Give us a call or come visit our dealership to find your vehicle, talk about financing, and discover how easy it can be to shop for a car.