Subprime Auto Loans and no money down!
When you’re borrowing money, a lender only wants an assurance that you’re going to pay it back in a timely manner. When you have bad credit, it’s due to the fact you’ve made some mistakes in handling debt. Because you have this sort of record, a lender will use it as a predictor of your future behavior when considering you for a loan. In the early years of auto financing, the only way to do this was for a lender to view a collection of your bills, pay stubs, and banking information. Now, lenders have access to a series of numbers that boil your ability to repay a loan down to a simple score. A glance at your credit scores can tell a lender if you’re in the market for a subprime auto loan.
As lenders conduct business, they don’t think in terms of good credit or bad credit. Instead, they break down their categories of financing as prime (good to perfect credit), non-prime (average credit), subprime (bad credit), and deep subprime (no credit). If your credit scores indicate that you’re a subprime borrower, you’ll have a harder time getting approved for auto loans based on the fact that your scores show that you have problems handling your debts. But, that’s not the end of the story.
Subprime auto loans are as much a part of the financing industry as prime auto loans. As much as a quarter of the borrowing public qualify as having bad credit which, although a minority, is not a market to be ignored. In a worsening economy, more consumers will slide into the subprime market. On the other side of the coin are those borrowers who have perfect credit. Only about 10% of consumers fall into the prime lending market, which means lenders would rather do their fishing in more plentiful waters.
Your approval for an auto loan relies on your predictability. In a market that caters to subprime borrowers, your record of repaying loans, paying monthly bills, and regularity of your income, can help to mitigate the costs you’ll incur because of your bad credit. By also making a substantial down payment, you can show your potential lenders that you’re committed to the investment. A minimum of 20% is what’s needed here, but more would be better. Don’t forget to include the possible trade-in value of your old, if you have one. Down payment plus a trade in can help toward loan approval, and push your interest rates down a bit more. You may get some ‘no’ answers, but it’s worth shopping around for as many possible approvals as you can get.
Subprime car loans have become a regular part of business for most national lending companies. While car dealerships have their own financing departments, they have to rely on lending companies too. The difference is, you’ll have to deal with their costs on top of your own. With the availability of subprime auto loans for the average consumer, you can still go to a lender first with reasonable chances of getting approval freeing you from the need to get the loan where you buy your car. Although you’ll still have to pay higher than average interest rates, you’ll save money by working directly with the lender.
You’re in good company if you have bad credit. People from every income level may find themselves struggling with bad credit for whatever reason. Reputations count in the auto loan industry and, while a piece of your reputation is revealed in your credit scores, the real story about is revealed in your current actions. What a lender wants to see is reliability in any new customer, and once you’ve established a report with your new lender, things will improve on the next go-around – if you were diligent in paying off your loan.