7 important things to understand about subprime auto loans
Subprime auto loans are a little different from traditional financing. And since they’re different, you may have questions about the process, if it’s right for you, and how to get one. We’re here to offer some advice.
1. Who are subprime auto loans for?
Subprime vehicle financing is designed for borrowers whose credit is not perfect. If your credit situation is similar to any of these situations, then a subprime auto loan could be for you:
- You went bankrupt
- You are a new borrower or first time car buyer
- Your credit score is below 660
- You have situational bad credit
- You have a repossession of more than 12 months on your credit reports
- Your credit history has negative ratings
Subprime lenders can help borrowers with many unique credit situations. If you’ve had a hard time getting car loan approval from traditional lenders, subprime loans might be the next step.
2. The subprime auto loan process
Subprime financing involves a different order from traditional auto financing. You must first qualify for a loan before you can choose a vehicle. If you’re approved, the subprime lender sends the special finance director the payment call, which is the maximum monthly payment you’re entitled to. From there, you choose a car that matches your needs and the requirements of the lender.
How the stages break down:
- Find a special financial dealer
- Apply for a car loan from subprime lenders
- Lender determines eligibility
- If approved, a payment call is sent
- Choose a vehicle and take delivery
3. Interest on subprime auto loans
One of the most common questions we get here at Auto Express Credit is the interest rate that a user can expect with a subprime auto loan. We are not a lender, but we can tell you that borrowers from our dealer network have an average interest rate of around 13%.
Where there is bad credit, there is almost always a higher interest rate. Your credit score is essential in determining the rates for which you may qualify, and each lender may have a different definition of what bad credit is. For the most part, borrowers with a credit score of less than 660 are likely to be considered bad credit borrowers or subprime borrowers. If your credit score is in this range or below, you may need to budget for a high interest rate. However, refinancing is a common avenue that borrowers with bad credit explore to lower their vehicle interest rates later.
If you are looking for a lower rate despite a bad credit rating, consider hiring a co-signer. Co-signers can improve your chances of being eligible for a car loan and can help you get a lower interest rate than if you had to apply on your own.
4. Down payment conditions
Chances are, you’ll need a down payment. Most subprime lenders require a drop of at least $ 1,000 or 10% of the vehicle’s selling price. Trade-in shares, cash or a combination of the two can be used to meet this requirement.
Down payments also save you money as a borrower. Since auto loans are almost always simple interest, the less you borrow, the less interest you pay.
5. Income requirements
Most subprime lenders require you to have a minimum monthly income of around $ 1,500 to $ 2,500 before taxes. This requirement must be met with only one source of income. In general, subprime lenders prefer borrowers with proven W-2 income with recent computer generated check stubs.
If you have 1099 or other sources of income besides W-2, you may need additional bank statements, tax returns, or other supporting documentation.
6. Risk lenders work behind the scenes
Subprime lenders are indirect lenders, which means they are registered with special finance dealers and you do not meet the lender in person. Instead, the dealership’s special finance director acts as an intermediary between you. It differs from a direct lender such as a bank or credit union, where you get financing straight from the source and bring it to the dealership with you. The direct loan is more difficult to obtain if you have a low credit score.
7. Find risky lenders
You can apply for a subprime car loan from a dealership that has registered with these lenders. The dealers who have registered with them are called Special Finance dealers, and there are many across the country. However, they are still easy to spot, as many dealerships do not advertise their lending partners. So how do you know which ones are registered with the lenders you need?
AT Auto Express Credit, we want to make it easier to find your next auto loan by putting you in touch with a specialist financing broker in your area. Get started now by filling out our free auto loan application form. We will look for a reseller near you at no cost or obligation.