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How Does No Credit Check Auto Financing Work?

How Does No Credit Check Auto Financing Work?

If you've got a very bad credit rating you might think your chances of being approved for an auto loan are low to zero. However, while it's true that a bank or other regular lender may not even consider your application, it doesn't mean you can't get finance.


There's a type of car loan which doesn't depend on your credit rating - in fact, your credit history isn't even checked before you're approved. How can that possibly work?


The basic idea is that the lender assumes you've got a bad credit rating, and offers a loan designed to take that into account. Here's what's involved.



Car and Finance Packages


Firstly, your chances of finding a no credit check car loan are hugely improved if you take out a car plus finance package, where you borrow the money from the same company who's selling you the car.


This reduces the risk for the lender, but in many ways, it's also more convenient for the borrower. There's less paperwork involved than with a regular car loan, as the lender already knows the value of the vehicle, so you don't need to offer any proof.


What the Auto Finance Lender Considers


Although the lender won't look at your credit history, it's unrealistic to expect them to approve loans to just anyone. For your application to be successful, you'll have to show two things.


First, you'll need to provide proof that you have a steady job with a regular paycheck coming in. The lender will also want to know that your income is high enough to cope with the repayments, and that you've been employed for long enough for your work to be fairly secure.


Second, you'll also usually have to declare your total debt levels, and sometimes the amounts you repay each month. While the lender doesn't care about the details of your credit history, if you already have a pile of debt they'll probably be wary of adding to it, in case it tips you over the edge and you end up defaulting on the finance.


Down Payments and Interest Rates


Although loans without a credit check sound great in theory, they do have a couple of unavoidable drawbacks. The biggest one is that you'll be expected to put down a large down payment if you want to receive a reasonable interest rate. The down payment needs to be large enough to cover potential losses for the lender if they wind up needed to repo the vehicle a few months or years down the line.


But whether or not you can afford a large down payment, you can't expect a no credit check loan to offer the best rates on the market. You'll have to pay higher interest charges to make up for the increased risk of default that the lender is taking on.


Nonetheless, even with these two drawbacks, a no credit check loan can be a great solution if other ways of getting auto finance are blocked to you. If you have a bad credit rating, or no credit rating at all, use Freedom Credit to apply for auto loans in Edmonton and you could be on the road sooner than you thought.

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