When standard auto loans are denied, subprime car loans are sought instead. Subprime creditors lend their money to those without at least a "Fair" rating for a credit score. It may seem like a generous second chance, but often this second chance comes at a steep price. Here are two reasons why someone with a bad or poor FICO score may want to reconsider getting a subprime car loan.
Massive Interest Rates
Every time a subprime lender allows subprime car loans, they take a risk of the borrower defaulting on the loan. To make up for this risk, the lender spikes the loan's interest rates. It will be quite a frustrating experience paying for deliberately elevated interest rates, especially after knowing what the normal interest rate should be. A person with a bad credit history probably won't have a choice in this matter; it's either take the subprime car loan or go without a vehicle.
A Lurking Repo Man
Vehicle repossession is another risk in accepting subprime car loans. Subprime lenders won't hesitate to get the vehicle pulled from the owner's possession. Just one late payment could mean the difference between driving and using public transportation. Some subprime car loan lenders have gotten especially furtive about how they go about repossessing vehicles. For example, they may provide a free GPS device in the purchased car. This implanted device can and will be used to hunt down the vehicle for a speedy repossession.
In October 16th, 2011, this practice got out of hand and ended with a Jacksonville car dealer facing a lawsuit by Florida's attorney general. Having a car repossessed will leave a long-lasting smear on a person's credit rating. Additionally, the harsh interest rates may make a loan seeker think twice about subprime car loans. Even with these potential problems, however, both borrower and lender know that having to deal with subprime car loans is still better than walking. If you're thinking of getting a subprime car loan, please proceed with caution.
When an economy turns south, more and more people are denied the credit they deserve. Millions see their credit scores drop into the low range, under credit bureau standards. These people may not really be any riskier today than they were yesterday, it's simply how people are rated. With low credit, many believe that a car loan is beyond their reach. This simple isn't true.
For most lenders, the credit score is just a number. They look at the individual, and their buying power. A person who pays cash for all their purchases may have a low credit score simply because they never use credit to buy goods and services. Many other people will have their credit scores drop through no fault of their own. Fortunately, many car dealers will help low credit buyers obtain car loans.
By offering low down payments, reasonable interest rates, and absorbing risk, car loan specialists are able to help people get into a new or used car. They understand that people need cars in America to get to work. The odds of being repaid by a borrower increase significantly when the borrower has reliable transportation to get to their job. They use these facts to secure financing for individuals who may have been denied loans by other lenders.
Hundreds of new and used cars are available for low credit borrowers. With low down payments, people lacking large sums of saved cash or trade ins are now in a position to obtain a vehicle of their own. High quality vehicles with low monthly payments help boost the economy and create a peace of mind in the buyers life.
If you've seen your credit score drop, been denied a car loan or thought you couldn't get a loan, you're probably looking at the wrong lenders. Today, millions of Americans are getting car loans with less than perfect credit, and you can too. It's a matter of finding the right car loan.