Shopping for a car or applying for a loan of any type requires the lender to take a close look at your credit history. More and more buyers in today’s economy may have been struggling to pay their bills on time and their credit score reflects this. Subprime is defined as “credit or loan arrangements for borrowers with a poor credit history, typically having unfavorable conditions such as high interest rates.”
Once your credit score sinks to the subprime level -- usually 650 or below -- you will have to prove you have the means to make payments on your car loan. One of the ways you can do this is to save some money and offer a hefty down payment. If you are not in immediate need for a new car, take a few months and set aside what you will be spending on a car payment each month. This will help you establish a reasonable budget and ensure you can make the payments.
A subprime auto loan will also mean a higher interest rate. Before you begin shopping for a car check your credit score and get a copy of your credit report. Research the average subprime rates that are usually charged for your credit score. The more information you have going into the negotiating process the more likely you will be able to get a good deal and get the car you want.
You will probably need to deal with a financial specialist who works with subprime auto loans. Talking with someone before you apply for a loan may also help you fix some easy problems with your credit history and raise your score out of the subprime market. Depending on how low your score is, paying off one or two small accounts may make a big difference in the interest rate you will be paying for your car.
A credit score in the subprime range does not mean you cannot get a new or used vehicle. There are several lenders who specialize in auto financing for people in this situation. The key to making sure you get a good deal is budgeting for the payment and not overextending yourself, being aware of the interest rate, and working with a financial specialist who understands your situation.
