How In-House Financing Dealerships Impact Credit Scores - Auto City Credit (2024)

FAQs

Does in-house financing affect credit score? ›

The answer is YES! In-house financing can definitely impact your credit score – in a good way. Purchasing a used car at a bad credit car lot like AutoMax not only puts you in safe, reliable transportation, but it also gives you a method by which to start rebuilding your future. And that's priceless.

When you apply for a car loan, the lender's hard inquiry into your credit could temporarily ding your credit score by a few points. However, its effect is usually short-lived, and you may strengthen your credit in the long run by making timely payments.

Speaking about in-house financing, we mean the lending process when a loan is issued by a seller with no involvement of banks, credit unions, or any other credit institutions. In other words, it's a point-of-sale (POS) credit extended to a customer on the spot with no necessity to visit a bank.

A dealership checking your credit score is a soft inquiry and won't affect your credit. Any hard credit check triggered by a loan application will appear on your credit report, shaving points from your credit score.

However, in-house financing isn't always great for car buyers. People who turn to in-house financing often have bad (or no) credit. Since the dealership knows they might be the only ones willing to lend to these buyers, they charge ultra-high interest rates and fees.

Credit score and mortgages

The minimum credit score needed for most mortgages is typically around 620. However, government-backed mortgages like Federal Housing Administration (FHA) loans typically have lower credit requirements than conventional fixed-rate loans and adjustable-rate mortgages (ARMs).

Why credit scores can drop after paying off a loan. Credit scores are calculated using a specific formula and indicate how likely you are to pay back a loan on time. But while paying off debt is a good thing, it may lower your credit score if it changes your credit mix, credit utilization or average account age.

Can I get an auto loan with an 734 credit score? Absolutely. Your 734 credit score will qualify you for an auto loan, assuming your income justifies it. However, it's important to realize that your credit score can make a big difference in the interest rate you get.

The most likely reasons are: your balances increased, you recently closed accounts, you applied for new lines of credit, or there is inaccurate or fraudulent information on your account. If your credit score dropped by 40 points, this is likely due to late payments that continue to compound on past-due bills.

In-house financing provides an easier, quicker approval process. In-house financing of cars is usually more flexible as far as credit score and qualifications. It's much easier to budget when you can go over insurance options and extended warranties at the same time that you apply for a loan.

Is financing a home the same as a mortgage? ›

Finally, another key difference between these two types of financing has to do with down payments. Loans typically require borrowers to make a down payment of 10-20% of the total loan amount. Mortgages usually require a down payment of 3-5% of the total purchase price of the financed property.

The two big credit scoring models used by auto lenders are FICO® Auto Score and Vantage. We're going to take at look at FICO® since it has long been the auto industry standard.

Auto lenders may rely more on Equifax and Experian for credit report insights, but TransUnion also sells consumer data to a number of automotive lenders. Credit scoring models such as FICO® Auto Score 9 generate a credit score based on the debt and payment information in a consumer's credit report.

Although dealerships may have a preferred lender, some dealerships choose to "shotgun" your credit information to multiple lenders, which is a tactic dealers use to make lenders compete to give you the best rate. Many dealers contact around five lenders and then choose a single loan offer to present to you.

Getting denied for a loan or credit card will not be recorded on your credit report, and it will not directly impact your credit scores. To improve the chances that you'll be approved for credit, you may want to take a look at your credit before you apply, and take steps to improve it if you need to.

The good news is that taking a mortgage holiday itself should not negatively impact your credit rating. That's because lenders are aware that many borrowers may need to take a break from their mortgage payments due to unforeseen circ*mstances, such as job loss or illness.