Subprime Auto Loans
Subprime Auto Loans for Poor Credit Scores
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Subprime Auto Loans help you rebuild your credit score and get a reliable car fast. Here is how it works:If you have a bad credit score due to a financial emergency you can’t get a traditional car loan. Lenders offer prime loans to people with a good credit score. You need a lender who can get you car loans with bad credit at a decent interest rate.
When Subprime Auto Loans can be beneficial:
- Subprime auto loans can help people get a reliable car fast
- Subprime car loans can help students and first-time car buyers
- These loans help customers improve their credit score
Subprime car loans usually have higher interest rates than prime loans. Why?
Because lenders see people with bad credit ratings as a risk. Lenders still want to collect enough money to keep on operating. To reduce the risk, they offer higher interest rates. This way they can still collect a sizeable amount of money.
1. What does a subprime auto loan mean?
This definition comes from the credit rating system. Subprime credit scores range from 550-620. If your credit score falls in this range, then you qualify for a Subprime Auto Loan. It’s a type of car financing provided to potential car buyers who don’t qualify for ordinary auto loans because of low credit scores.
A subprime auto loan usually has higher interest rates compared to typical car loans. Banks and car dealerships that offer Subprime Auto Loans have a special set of requirements. For instance, having cosigners with excellent credit scores.
2. How does a subprime auto loan work?
First, a car sales rep will request for your credit report to check whether you qualify. If it falls within the 550-620 credit score range, the sales reps will provide you with an application form. Inside, you’ll read about the requirements for receiving a subprime auto loan.
After providing all the requirements, and paying loan application fees, your dealership works out a payment plan based on how much you can afford to spend monthly. Low monthly auto loan installments mean signing up for the longest repayment period available. If you agree to your lender’s credit terms, the dealership hands over the car keys to you.
3. Are Subprime Auto Loans safe?
Yes, they are. In fact, you have nothing to worry about because the Consumer Financial Protection Bureau approves subprime auto loans. Car dealerships and banks that offer Subprime Auto Loans must explain to potential customers about the application process, interest rates, and professional assistance.
Subprime Auto Loans are safe because you receive the car immediately after paying a specified down payment. Receiving a subprime auto loan doesn’t lower your credit score. Financial coaches recommend applying for Subprime Auto Loans because your credit score improves by a huge margin after successfully paying all monthly installments on time.
4. Is there a grace period for car payments?
Fortunately, most creditors don’t expect you to pay up at the beginning of the month. Some creditors offer a five day grace period. If you’re lucky, you might meet a car dealership or bank that gives customers a 10-day grace period.
If you anticipate a salary delay, you can avoid late payment fees by informing your car dealership in advance. This won’t affect your payment history in your credit report.
5. How long can you defer auto loan payments?
It actually depends on your subprime auto loan provider. When a car buyer explains his or her financial problems, the car dealership may request for lower payments temporarily.
If you usually pay $2,000 monthly but run into some temporary financial challenges, your car dealership will ask you to pay $1,000 for six months. You’ll pay the outstanding balance by paying higher monthly installments once your finances improve.
There are a few creditors who allow car buyers to skip two consecutive payments on condition that the buyer will catch up in the third payment. However, this is risky because failing a third time leads to car repossession and ruined credit scores.
6. Can you give back the car to the finance company?
A voluntary surrender is whereby a financially-overwhelmed car buyer returns a motor vehicle to the car dealership or creditor that’s providing his or her auto loan. Is this option legal? Yes, it is.
A voluntary surrender has a similar effect as a car repossession does on your credit report. It remains visible in your credit report for seven years. This demerit can affect your chances of getting loans and subsequent car loans in the future. Your credit score drops significantly because a voluntary surrender doesn’t cancel out your outstanding auto loan balance.
Voluntary surrenders are bad for you because some car dealerships won’t accept your car unless it’s fully serviced. This can cause you sleepless nights because you somehow have to find enough money for car servicing despite facing unexpected financial hurdles.
7. What happens if I don’t pay my auto loan
In this case, your subprime auto loan lender arranges for car repossession. If you’ve watched Operation Repo, then you understand that car repossession is not a rosy affair. Actually, It’s noisy and humiliating because car repo men seem to enjoy towing away cars in full glare of neighbors.
Car repossession is humiliating but your credit score takes a nasty hit. If you think getting subprime loans is an uphill struggle, you have no idea how hard it is getting a bad credit loan when your credit score drops to 500 points or less.
8. What happens to my car if I lost my job?
The good news is that you can always seek for a subprime auto loan refinancing plan. Some car dealerships that offer auto loans also offer the same service under one roof. An auto loan refinancing plan is better than voluntary car surrender because it doesn’t affect your previous auto loan payment history.
How does subprime auto loan refinancing work? First, you need to fulfill a set of requirements such as having a minimum outstanding balance. Your car should be in excellent condition because the creditor will resell it in case you fail to pay your refinancing monthly installments on time. If you meet these requirements, the new creditor pays off your outstanding auto loan balance.
Since you still have outstanding car payments, your new creditor will create a new monthly installment plan that matches your financial situation. The advantage of an auto loan refinancing plan is that you can lower your monthly installment by up to 30 %.
9. What is a deep subprime auto loan?
A deep subprime auto loan is ideal for potential car buyers with credit scores of 500 or less. Usually, such customers face numerous rejections from banks, car dealerships, and credit unions because a deep subprime credit score indicates low payment history and bitter creditors.
While it’s possible for one to secure a deep subprime auto loan, one has to endure expensive interest rates. In addition, a car buyer with deep subprime credit cannot purchase a new car because a high price tag presents a great risk of nonpayment.
1. Are Subprime Auto Loans for me?
If you really need a car and you have a subprime credit score, there’s no reason not to get a subprime auto loan. In fact here are ideal situations that allow potential car buyers to apply for Subprime Auto Loans.
2. When you want a better credit score fast
Did you know that secured debts bear more significance in your credit report than unsecured debts? That’s why financial experts advise people with subprime and poor credit scores to apply for secured credit cards and Subprime Auto Loans.
If you’re tired of getting rejected by creditors anytime you want a mortgage or a bank loan, just apply for a subprime auto loan. It might take you 12 or 24 months to repay the loan, but you’ll reap the benefits of an improved credit score for several years.
3. When you can’t afford a car lease
Sometimes leasing a car makes sense if your employer posts you to a new working station for a short period in a different state that’s far from home.
If you’re a college student studying 100 miles from home, you need a car of your own. Why? Because studying for an undergraduate degree might take 3-4 years. In this situation, leasing a car is unwise because the amount you’ll end up paying eventually can get you a slightly used car.
It’s better to apply for a subprime auto loan because you gain good credit history while boosting your credit score at the same time. After graduation and landing your first job, it will be easier for you to get a good mortgage because you established a good credit history by applying for a subprime auto loan. Remember, secured debts bear more significance on your credit report than unsecured credit.
4. When you can afford monthly installments faster than saving up for a car
Paying cash for a car in the dealership requires consistent monthly saving. A middle-class worker needs to save up for more than 12 months in order to make a cash purchase in the car dealership. This saving goal can be tricky when you have a mortgage, student loans, and high utility bills waiting for your paycheck at the end of the month.
5. When interest rates drop to a favorable point
Sometimes, when the national economy is performing at an optimum level, there’s an abundance of capital. In this situation, buyers prefer making cash purchases as opposed to credit. Credit lending institutions lower their interest rates because there’s a reduced demand for credit purchases.
You definitely save money as a direct result of reduced interest rates. If you get a car loan worth $25,000 at an interest rate of 12.37% with a repayment period of 48 months, you’ll pay $663 monthly. However, when the interest rate drops to 8.00% and other factors remain unchanged, you’ll now pay $610.
6. When you can raise the required deposit within a short time
Let’s assume that you got a new job that pays double your previous one. If it took you six months to save $6,000, your new job enables you to double your savings within the same period, This enhanced purchasing ability also enables you to buy a better car because your disposable income has just doubled.
If you don’t have any new bank or student loans, you should start saving up for a down payment. It won’t be hard for you to pay your auto loan installments on time when you earn a good salary.
7. When recovering from a nasty financial situation
If you recently underwent a divorce, you’re worried about whether you can pay all your auto loan installments on time. Perhaps you sold a portion of your business and this led to you earning fewer profits. In the process, you also lost your house and you need a new home as soon as possible.
Applying for a subprime auto loan can help you save money because you only need to pay a 20-30% deposit. This is more affordable than making a cash purchase. If you don’t like public transport, getting a subprime auto loan will enable you to afford a temporary car while you get your finances in order.
8. To get low-priced auto insurance quotes
Did you know that auto insurance companies use credit scores to determine quotes?
These companies check your credit score to assess your payment history and risk of default. Car owners with excellent credit scores get cheap car insurance quotes because they have long histories of paying credit on time. In addition, car owners with impressive credit ratings enjoy high approval rates whenever shopping for auto insurance covers.
Since you now know that secured debts have more significance than unsecured credit, apply for a subprime auto loan fast. The improvement in your credit score will make it easier for you to get cheap car insurance quotes.
9. When you get a genuinely good offer
Truth is, you’ll come across some car sales reps who actually put car buyers’ interests first before thinking about sales commissions.
While shopping for an affordable car, you may come across a sales rep who will listen to you keenly and suggest used cars that are in good quality. The sales rep might advise you to download your credit report before requesting for a subprime auto loan to avoid unnecessary loss of points.
Since it’s rare to come across such a genuine sales rep, you won’t put yourself at risk by applying for the subprime auto loan.
10. What are the benefits of Subprime Auto Loans?
1. Enables you to get a decent used-car
Just because you have a poor credit score doesn’t mean that you’re doomed to wrecked cars. If you take time to do thorough window shopping, you’ll come across a car lot with decent used-cars that are less than eight years old.
Buying a well-maintained used car gives you value for money because you won’t spend any extra cash on repairs and replacing worn out engine parts. You’ll also pay more affordable insurance quotes as long as your car is in good condition.
2. Improves your credit rating significantly
By now, you already know the value of secured loans over unsecured ones. If you’ve just come out from debt settlement, then you have a hard time getting a credit card or mortgage due to a bad credit report. Fortunately, you can get out of rejection by applying for a subprime auto loan.
As long as you pay all your installments on time, your credit score improves monthly. After the final installment, you’ll notice that your credit score is way higher than it was before getting a subprime auto loan.
3. Enables you to enjoy private transportation within your means
Subprime auto loans are ideal for first-time car buyers because you don’t need an excellent credit score to qualify. Car buyers also enjoy various ownership privileges right after paying a cash deposit up front.
Since car dealerships usually request for 20-30% upfront, a college student can save this amount within 3-6 months. If the asking price is within a college student’s reach, then the auto loan installments will be a piece of cake.
4. Affordable car purchase option for people dealing with high debts
If you’re a single parent, then you understand how challenging it is paying for your home’s mortgage, utilities, and various loans by yourself. Signing up for a costly loan can push you into nasty debt cycles. However, you can still afford a car through applying for a subprime auto loan.
Requesting for longer repayment periods lowers the amount you pay each month. It’s actually allowed and you don’t need to worry about any consequences from your car dealer. After all, everyone in America understands that house prices are expensive.
5. Helps you to establish a long friendship with a good car dealer
Smart car buyers establish friendly rapports with car dealership staff because these relationships have several advantages. If you inform a car sales rep about your savings project for a new car, he or she will set aside the best cars for you to choose from. Now, you’re assured of getting value for money whenever you buy cars from that particular car dealership.
Car sales rep can also give you industry information that’s usually kept hidden from most car buyers. For instance, the best times of the year to buy a car.
Most people think Christmas but did you know that dealerships set low prices for cars that are about to get replaced by more recent versions within a few months? For instance, you can get a 2018 Honda Accord at a better price just after Honda launches the 2019 Accord.
Car dealerships also know the best mechanics in town. If you’re a first-time car buyer, you need this help because quack mechanics will still engine parts and demand high service charges.
6. You can always seek subprime auto loan refinancing
Auto loan refinancing is an ideal option for a car buyer who still wants to retain their car as opposed to a voluntary surrender. One big advantage is that it doesn’t affect your credit rating. Some car dealerships and banks that offer auto loans also provide subprime auto loan refinancing.
When you apply for an auto loan, you don’t lose your auto loan payment history. Applying for a subprime auto loan helps you to keep your credit score up by offering you more affordable monthly installments at better interest rates.
11. 5 tips that will help you get a subprime auto loan fast
1. Always stay updated on your credit report
Creditors hate dealing with potential borrowers who don’t have a clue about their personal credit reports. Some banks and car dealerships have hundreds of applications to process per day. They may lack time to download your credit report.
Make sure you download your credit score from FICO the same time you start saving for a down payment. Doing this will help you monitor changes in your credit score when you pay your credit card debts and bank loans.
2. Pay a huge car down payment
Subprime Auto Loans are a form of secured debt because car buyers need to pay down payments before receiving the car keys. Smart car buyers compensate for their below-average credit ratings by paying at least 50 % up front. This move helps them to win the car dealership’s trust easily.
Paying a huge car deposit enables you to pay lower auto loan installments within a short period. Let’s assume you get a subprime auto loan worth $16,000 at a 12% interest rate and a repayment period of 48 months. If you pay $8,000 up front for a car worth $16,000, you’ll pay $211 monthly.
If you paid a 20% deposit and other factors remain constant, your creditor would expect $337. That’s a difference of $126!
3. Buy a car that’s within your budget
Your car’s buying price determines the repayment period and monthly installments. A car buyer who wants credit financing for a 2018 Range Rover will pay higher installments compared to a buyer looking for a 2018 Toyota Camry. A Range Rover buyer will need a longer repayment period due to the high difference between his or her down payment and outstanding balance.
Do you want to pay affordable auto loan installments within a short repayment period? Budget for a car that’s fairly priced. You’ll be able to save up for a good down payment within a short time.
Get a subprime auto loan today!
Now that you’ve understood how Subprime Auto Loans work, go ahead and call us or send an email. You definitely want a better credit score because banks will always give you costly mortgage deals as long as you have subprime credit. People with subprime credit scores also experience high rejection rates when applying for credit cards.
Applying for a subprime auto loan may seem unpleasant to a first -time car buyer, but you’ll reap the benefits of a long payment history in many ways.
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