A Guide to Understanding Subprime Car Loans
Curious about what subprime car loans are really all about?
Financing options are available to a lot of people who are wanting to purchase a car, either used or new. But you don’t have to have amazing credit to get an auto loan.
Subprime loans provide a financing option for people who may not have the credit they want to have.
If you’ve heard about subprime loans as an option for your future of vehicle financing, read on to learn more information.
1. Subprime Car Loans Are Approved Auto Loans
Just because they’re called subprime doesn’t mean that these loans aren’t approved auto loans. They are a viable financing option for anyone who is eligible. They differ from prime auto loans merely in the type of individuals they serve.
In fact, you can take out subprime loans in a variety of areas–not just cars. The subprime financing industry has been growing for the past few years, and it’s continuing to grow in 2018.
With a subprime car loan, you’ll still be taking out a loan for the price of the vehicle you want to buy, whether it’s used or new. You’ll be approved for an interest rate and payment plan just as you would be for any auto loan.
2. You’re Eligible if You Have Poor Credit or Bad Credit History
Subprime car loans are for people who want to buy a car but don’t have the best credit to do so. They’re also ideal for people who have a poor credit history.
Generally, people with higher credit scores are more easily approved for auto loans. They are in line for better interest rates and fewer fees. But just because you don’t have solid credit doesn’t mean you can’t get an auto loan.
If your credit is on the lower end of the credit score model ranging from 300 to 850, you may be eligible for a subprime loan.
3. They May Have Higher Interest Rates and Fees
Wait a minute, you may be thinking. What’s the catch?
There isn’t a catch per say with subprime loans. But there’s a reason why they’re called “subprime.” Prime loans are given to what the credit bureaus perceive as more dependable borrowers, as evidenced by positive credit history.
Subprime car loans will be subject to higher interest rates and potentially higher fees. This is because credit bureaus don’t classify people with poor credit is highly dependable borrowers.
At the end of the day, lenders just want to make sure that you’ll pay your loan back. Because lower credit borrowers are more “risky” in this sense, they pay higher interest rates.
If you have good credit, you may expect to pay interest rates between 2 and 4 percent on your auto loan. Subprime car loans may be subject to rates that are twice this or more, as well as to additional fees.
What’s more, you likely won’t be able to negotiate these interest rates once you’re approved for a loan. Once again, this is because of the high credit risk that you pose to the lender.
4. You May Have a Prepayment Penalty
Furthermore, borrowers of subprime loans may have to pay a fee if they prepay the total loan amount before the end of the agreed term. This is called a prepayment penalty.
Prepayment penalties aren’t just a subprime fee, however. Lots of borrowers with good credit may be subject to penalties if they pay off their loan before a certain date.
5. It Is a Viable Option For Many People
Just because subprime loans are for people with bad credit, and may be subject to higher rates and fees, doesn’t mean that they aren’t viable. In fact, lots of people take out subprime loans on a regular basis.
This is often because subprime loans really are the only option. In many ways, these loans are more affordable in the long run despite the fees and interest rates because they offer a feasible leasing plan for people in need of a vehicle.
It’s also a great solution for people who are struggling to afford even a used vehicle.
6. Get a Subprime Loan From a Trusted Lender
There are plenty of subprime loan lenders out there, and many will approve you for a loan through an easy application process. It is important, however, to be careful when browsing lenders as there tend to be a lot of scams.
Check out Auto Credit Express to check out their list of reputable subprime lenders across the nation. Before you do submit an application for a loan, however, make sure you compare offers from a variety of lenders so you can get the lowest possible interest rate.
You can also talk to your local car dealer for advice about financing options. Many car dealerships will have a direct connection with banks and lenders so that you can take care of financing right on site.
7. It’s Still Important to Build Credit
At the end of the day, it’s still essential to tackle poor credit in order to get the best possible financing option for the vehicle you desire. You may not have to take out a subprime loan if you spend some time boosting your credit.
There are ways that you can get a quick credit fix. These include managing timely payments, increasing credit limits on your existing cards, and inspecting your credit report.
Even putting off getting a loan for a handful of months while focusing on your credit can help you get a better offer for a subprime loan.
Understanding Subprime Car Loans
Subprime loans are available to people wanting to finance a car, house, or other purchase despite having poor credit. They are an approved auto loan that often comes with high interest rates and extra fees.
It’s important to understand all the terms of your subprime loan before you agree to it and to explore all of your other options. Talk to a representative at your local car dealership to ensure you’re getting the best deal.
At House of Cars, we’re here to help you find the vehicle you need at an affordable cost. Learn more about our financing options today!