We all require to use a car at some point for one reason or another. Cars may not only be used as a sign of prestige for many people but are also used for their efficiency. The norm in life is to get a well-paying job, get enough money before stepping out to purchase a car.
A car for some other people can be used to earn them a living or to make their lives easier. Many people may not be in a position to buy the car probably because they lack enough cash. To top it up, a person may have a bad credit score. Setting out to buy a car with bad credit and no money down is a hard task. Lucky for you, we have outlined a number of ways you can use to buying a car with bad credit and no money down.
Someone who needs to purchase a zero down payment car will not go through the normal process of buying a car when you have cash, more so the full amount. If in search of a car and have no down payment and with bad credit, there are four places you can start off with;
- Subprime auto lender companies
- Buy here pay here lots
- No credit check auto dealers
- Leasing the car instead of buying it fully
Subprime auto lender companies
Subprime auto lenders are companies which offer car loans to people often with bad credit or those with limited credit histories. The companies will offer you a loan based on your details. These conventional lenders do not, in most cases, interact directly with you. You will be referred to enlisted dealerships where you can seal the deal by picking a car that matches your loan.
The loan will only be of use at a dealership which has signed up with the subprime lender. One of the main reasons why these subprime lenders work with car lots or dealerships is majorly for security purposes. Before approving your details, the company will need the dealership to verify that the details you provided are all correct.
These details include proof of residence, verification of employment, etc. Furthermore, the dealership will be expected to send back to the lenders all the details of the vehicle which the buyer has agreed on.
How to buy a car from subprime lenders
As you shop for your car, you should also shop for a lender. In fact, you should be on the search for the lenders first before actually deciding on the type of car you want. Carry out some internet searches and also keep your ears open as you listen out for reviews of the best subprime lenders. Do not settle on the first one as they may not always have the best offers but at least have more than one option to choose from. After contacting them, most of them have instant auto loan approval regardless of your credit score. They will then refer you to auto dealerships which they have signed up with them. Here you will need to go to their finance office who will confirm that the subprime lenders have allocated a certain amount of money for you. They will then take you through the inventory (list of available cars matching your finances). After settling down on one, you will then proceed with the paperwork.
Requirements for one to qualify for subprime lenders’ auto loans
- Proof of identity
You will be required to provide proof of identity at the dealership. In as much you filled out the documents with your personal details with the subprime lenders, you will, however, need to provide proof of this at the auto dealership. Some will ask you to provide only an original copy of your identification card or (and) your driver’s license.
- Proof of income
Lenders want to know whether you will be able to repay the loan or not. You must provide proof of income and how much you earn per month. This will greatly determine what type of auto financing you will receive. Pay stubs or other bank slips which show proof of your income are the best for such verification.
Employment will also need to be verified. The lenders will make sure that your employment status is permanent and that you are not planning on leaving your job soon and have been working there for quite some time. Self-employed people are also allowed as long as proof of tax returns has been provided.
- Proof of residence
Lenders want to know where to find you in case you default on your loan repayment. Furthermore, they will want an alternative way of reaching out to you just in case all the contact methods and addresses you provided do not work. Copies of utility bills will work just fine for this case not unless stated otherwise.
Top 5 things you need to know about subprime auto lenders
1. Higher interest rates
Subprime lenders finance people who mostly have bad credit histories and sometimes those with no money down. Such people are at a higher risk of defaulting on the loan hence a higher interest rate is charged on them. At the end of it all, the borrowers will have received their vehicle but will eventually pay a much higher price for it.
2. Stricter terms
Most of these subprime lenders have very strict terms and requirements. Some will even ensure that you pay a down payment as insurance that you will keep your word and pay the monthly rates as stipulated.
3. Longer repayment plans
Unlike other auto financing options, getting a loan from a subprime lender can get you a longer repayment plan. Some even have repayment plans for up to 5 years, or even more. This eventually means that you will repay the loan is smaller interest rates unlike paying so much in a span of a short time.
4. They are less tolerant
Subprime lenders are much less tolerant as compared to any other auto lenders. Whenever the borrower defects from the payment arrangements and defaults to pay, the auto lender has the right to decide when and how to take action. These companies can initiate repossession of the car immediately and without giving you much prior notice. Furthermore, they can take legal action against you or as it was stipulated on the agreement.
5. Extra Fees
There are higher and sometimes hidden fees associated with subprime lenders. These fees may not be told to the borrower and that is why it is always advisable to keenly go through the paperwork before signing it.
Buy here pay here lots
Buy here pay here (BHPH) car lots are another great way of buying a car with bad credit and no money down. They especially deal with older cars and will finance them for anyone seeking a car in a hurry and without making a deposit. It should be noted that these companies are after making the most profit out of older car models.
The requirements for getting a car from a buy here pay here lots is more or less the same as for subprime lenders, only that having bad credit or limited credit history should not be a big concern to you. You can also get used cars with a low down payment. With in-house financing, this is one of the best options for someone who does not wish to undergo through the long and tedious process of going to subprime lenders.
Below are top the 5 things you need to know about buy here pay here car lots.
1. The dealers will follow you everywhere
Signing up to most buy here pay here deals means allowing them to install tracking devices on the car. This makes their work easy when you default to pay the loan and they come to repossess the car. Some BHPH dealers will even have devices which can switch off the car remotely. In as much as this does not sound right, it is a way of them protecting their investment. You gave consent to it anyway.
2. High-interest rates
Buy here pay here car lots dealers will often charge quite high-interest rates as compared to other dealers. It is usually advised that if you have a good credit score, you would rather get financed by other auto lenders such as subprime lenders as you would get even better deals. However, the perception that buy here pay here lots charge extremely high-interest rates is untrue. You will even find some charging as low as 15% interest rates.
3. Hidden fees
Do not be fooled by how friendly the agents are to you and end up thinking that whatever you verbally agreed is exactly what you will be paying. Always inquire or keenly read the paperwork before signing it. Sometimes after giving you the car for a test drive, you may come back and directly sign the paperwork they give you. Note that these people are in business and some will want to make money by all means. Read the papers keenly, even if you had gone through them earlier. Look out for hidden charges such as;
- Handling and administration fees
- Delivery fees
- Inspection fees
4. Buy here sell here
This option, which is also known as trading in, works best at buy here pay here car lots. Since you are directly dealing with the dealership, you can bring your older car model to trade in with a newer one. Moreover, trading in your older car at these lots is like killing two bird with one stone. You will have gotten your new car much easier and the down payment will also act as a down payment.
5. Some BHPH lots do not report your repayments
This is one of the major concerns borrowers from BHPH car lots have as not all of them report your loan repayment status to credit bureaus. You may be in your best behavior, always repaying the loan on time in a bid to rebuild your credit score but the BHPH dealers do not report your payments. This eventually does not help your credit score and so it is advisable to always look for one that does so.
Leasing the car instead of buying it fully
Leasing a car is also another option which people with bad credit and in search of a zero down payment car can take advantage of. In this case, the borrower cuts a deal with the dealer to pay for the depreciation of the vehicle incurred during the period of the lease. This period is usually around 2 to 3 years. The buyer will cater for all the fees and charges incurred during the lease period. It is also the buyer’s role to pay for the car’s insurance during that period. If not with enough money to pay for insurance, you can opt for Instant Auto Insurance No Down Payment. Take a look at the top 5 things you need to know about leasing a car.
1. Easier approvals
Unlike subprime lenders, car leasing dealerships will easily approve your request as long as you have provided certain details such as your employment status, residence, etc. Having bad credit or deposit will not be a stumbling block to you.
2. You get to experience new cars frequently
At the end of the lease period, you can take back the car to the dealership and get a new one with modern technology and features.
3. Penalties when you exceed the maximum allowed mileage
There are penalties incurred when one goes past the allowed mileage during the lease period.
4. Penalties for wear and tear
Car lease dealerships will expect the car to be returned to them looking as clean as they sold to you. Should there be any wear and tear, you will be forced to it.
5. Penalties for ending the lease earlier
Should you end the lease before the end of the agreed period, there will be extra charges to you. Make sure to read the terms of ending the lease sooner in the paperwork before signing.
No credit check auto dealers
No credit check auto dealers give car loans to buyers who may have poor or limited credit scores. They do not pull down your credit history while discerning whether to approve the loan or not. There are other factors considered though, such as your ability to repay the loan, co-signer, and other legal requirements such as residence, age, etc.