If you’ve had credit problems, you may assume you can’t get an auto loan, or that it will be prohibitively expensive. Neither is necessarily the case.
Your options depend largely on your credit score. The real cut-off for most lenders is 660. That’s the point above which prime rates for new and used car loans begin, and they get steadily better until hitting super-prime in the mid- to high-700s.
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The important takeaway here is that many borrowers with derogatory information on their credit reports may not realize they can still find favorable rates for car loans if their score is above 660.
When your score falls below 660, however, you will encounter some limitations. You might not, for instance, qualify for a new car loan. Many borrowers won’t have a problem getting a loan for a used car, though—and responsible repayment can have a positive impact on your credit score. That means you stand a better chance of qualifying for a new car loan the next time you go shopping.
Borrowers with a score under 660 should also expect sub-prime rates for their used car loans. These are higher than a prime rate—there’s no question about that—but they can be manageable, particularly when your credit rating is above 600.
According to a recent report from Experian, used car borrowers with credit scores between 601 and 660 received an average percentage rate of 9.29%; those with scores from 501 to 600 averaged 15.72%; and those with deep subprime scores below 500 had an average rate of 19%.
What do these average rates look like in real terms? Well, if you’re borrowing $15,000 for four years, your monthly payment would be $365.34 (601-660), $422.96 (501-600) or $448.50 (below 500).
For the sake of comparison, the same loan for a buyer with a credit score in the 700s and a 3% interest rate would have monthly payments of $332.01.
So if you've put off buying a car you need because you believe you couldn't afford the extra interest, consider that the difference might be an amount you can live with, especially if it helps you rebuild your credit.
And always remember that CarsDirect can help you find the right used car and the right used car loan.
