Auto Financing Tips with Subprime Credit or Bad Credit
Posted Friday, Jul 28, 2023
We all have a credit history report that could be used for some work. However, you don’t have to keep your dreams of buying another car on hold until your credit report is squeaky clean. The truth is, many folks buy pre-owned vehicles and get auto financing despite having subprime credit / bad credit. Now that we’ve got your attention let’s get to the part where we tell you how you can get auto financing with bad credit / subprime credit.
Top 6 Tips for Auto Financing with Bad Credit
1. Have a Budget
Buying a new or used car starts with this, despite having a bad or good credit report. Having a budget gives you an idea of the money you can spend on a pre-owned vehicle and still live with yourself. If you've decided to buy a new automobile or a used car that's unfamiliar to you, you'll need to conduct some serious research – on not just the vehicle but your budget as well.
You should investigate the used vehicle options you're thinking about buying, including their maintenance and insurance prices, safety risks, warranties, and so on. You'll also need to understand your personal credit history and financial circumstances. This involves reviewing your credit reports and credit ratings to determine what auto loan funding you may be eligible for. When it comes to vehicle finance, it is critical to understand your financial condition and credit situation before moving forward.
You should also familiarize yourself with key loan terminology. Annual Percentage Rate (APR) terms, for example, might be the difference between a good loan and a poor one. The annual percentage rate (APR) influences both your monthly payment and the overall cost of the loan. If you don’t have a credit report that’s worthy of mentioning, just go to a used car dealership that provides auto financing for those with bad or subprime credit.
It is also important to note that while you can get a longer repayment period to pay out the loan in smaller monthly amounts, that could drag on for years. On the other hand, paying a higher monthly premium will get your loan amount repaid in no time. Since your financial situation may differ from the next person, it is important to keep that in mind and choose which option works for you.
2. Sub-Prime Loans Explained
The term sub-prime loans often pop up when discussing auto financing. While sub-prime loans gained in popularity during the early 2000s, many folks still see them as a good alternative to not having a car at all. However, sub-prime loans usually have a higher interest rate than prime loans, which means you may have to pay a lot more when getting a sub-prime loan. Also, there will be repayment penalties in place just in case you do not fulfill your commitments to paying your monthly payments on the subprime loan.
3. Make a Down Payment
You will have to make a down payment (even a small one) despite taking out auto financing with bad or sub-prime credit. The more you can put down when purchasing a car, the cheaper your loan amount—and monthly payment—may be. A higher down payment also decreases risk to your lender, which helps you achieve a cheaper interest rate on your loan in the long run. This might help you become a more competitive candidate, reduce your debt, and lock in a cheaper interest rate.
4. Consider a Co-Signer
Consider a down payment and a potential trade-in as you prepare to apply for a loan. A bigger down payment, a high-value trade-in car, or both can reduce the loan amount and boost your chances of approval. Also, if you anticipate a substantial income inflow in the coming months, such as a bonus or tax refund, you may want to plan to utilize that money for a higher down payment. Also, having a cosigner on your car loan might also help you qualify for auto finance. That being said, there are many used car dealerships and lenders who will need a cosigner for applicants with weak credit.
5. Getting the Sub-Prime Advantage
There is no formal cutoff score for subprime status; however, most borrowers are labeled subprime if their credit score is between 580 and 619 (FICO credit ratings vary from 300 to 850). An auto-loan lender may request pay stubs, W-2 documents, or 1099 forms to establish income while appraising a borrower.
If a borrower works in a field where it's difficult to establish income—say, a restaurant waiter who earns a lot of money in cash tips—they may need to bring in bank documents that show a history of consistent cash payments to their account. Some lenders will accept bank statements instead of or in addition to traditional pay stubs.
Because they do not have the administrative expenditures of a physical branch network, many internet lenders may offer cheap interest rates on vehicle loans. These lenders may also provide prequalification, which allows you to examine prospective offers without affecting your credit score.
In certain circumstances, you may even utilize a single aggregation site to acquire many loan offers using a single application. All you have to do is conduct your research, compare prices, and make sure you'll get the most bang for your buck when getting an auto loan.
If you think that your bad credit is just too “bad” for you to buy a new or used vehicle, you’re wrong. While it is advised to improve your odds of getting approval by cleaning up your bad credit history, you can always find the best auto financing deals at reputable platforms such as Star Motors LLC., despite having bad credit or subprime credit.
