In this day and age, credit rules over people with an iron fist, telling them what they can and cannot afford. With the economy still in recovery mode, subprime lending is still a big business in the automotive world. Experian considers any buyer with a FICO score of 670 or lower a subprime borrower. Despite damaged credit and low income, there are still loan programs for these buyers, but there are trade-offs involved, including interest rates that hover in the 19-percent range and less-than-ideal buy-here-pay-here options.
1. Online Subprime Lenders
A plethora of online lenders willing to extend loans to those who've had issues getting financed for a car in the traditional manner. These lenders typically have a quick and easy application process that give good folks who've just hit a rough patch the chance to get a newer car and rebuild their credit. These lenders are typically more open to longer terms to help compensate for higher interest rates and keep monthly payments within the buyer's budget.
2. Subprime Bank Loans
Some large banks are still willing to take on the risk of subprime borrowers on a case-by-case basis. These banks typically have stricter requirements than online subprime lenders like a stable address and job history, and solid proof of income. With subprime auto loans starting to rise in defaults, there is no telling how long traditional banks will continue considering these loans.
3. Car Loans During Bankruptcy
If you have filed for bankruptcy, it doesn't mean that you can't obtain an auto loan. In general, your bankruptcy case will be assigned to a trustee. This trustee is the person who will evaluate your financial condition and tell you what loan amount you should look for. There are several lending institutions that allow you to take a loan both during and after bankruptcy.
4. Buy-Here-Pay-Here Loans
Many small dealerships and even large franchises have gotten into the financing game with buy-here-pay-here options for folks with damaged credit or low income. These loans typically include a relatively large down payment and more frequent payments—weekly or biweekly—but they present excellent alternatives to higher-interest subprime loans. One thing to watch out for with these sorts of loans are inflated prices and super-long financing terms on cars that are well beyond their prime. Also, make certain that the dealer is reporting your timely payments to all three credit bureaus.
CarsDirect helps more credit-challenged customers find car loans than any other website in the country. The company works with a network of dealers who specialize in car loan financing. The dealer has access to a number of financial institutions and will shop around to find you the best deal. Just fill out a simple application and you will be on your way to receiving a car loan.
Related Questions and Answers
Do I Need a Cosigner for an Auto Loan if my Credit Score is Below 670?
Not necessarily. While not always required, though, having a cosigner who has an excellent credit score might result in a better interest rate on your loan. This cosigner may also help boost the price cap for your new car, allowing you to get a nicer or larger vehicle.
Will a Bigger Down Payment Give me a Lower Interest Rate?
In most cases of cases, a bigger down payment will have some affect on your interest rate, but your credit rating still has the biggest impact on your interest rate. If you have an excellent credit score, you will be offered the lowest interest rate available. On the other hand, if you have a credit score that is lower than 670, you are a subprime borrower, which means you'll get a higher interest rate. Having a 20 percent down payment can often bring down the interest rate. In addition, having a cosigner with an excellent credit score will often help you get a lower rate.
What is a Subprime Auto Loan?
A subprime auto loan is simply an auto loan that is made to a person with a less-than-stellar credit rating—typically lower than a 670. These are high-risk loans and banks often charge a premium for them, which leads to higher interest rates and extended financing terms to keep the monthly payment as low as possible.