If you're a used car buyer with less than perfect credit, you've probably encountered the term subprime while researching finance options. It's used by lenders to describe loans for borrowers with credit scores below (sub) those of low-risk (prime) borrowers.
So, what is a subprime score? Standards vary from bank to bank just as credit scores vary from credit bureau to credit bureau. But if your score falls below 640 -- the cutoff point used by Equifax -- you can assume your loan application will be treated as subprime.
A subprime loan will come with a higher interest rate -- the lowest rates typically require a score in the 700s -- but it may not be as high as you'd expect. It's important to note, though, that all subprime scores won't be treated equally in a lender's decision. A buyer with a score of 639, for instance, is likely to be offered much more attractive terms than a buyer with a 550 score.
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The important point is that many car buyers who think they can't get a loan actually can. Banks have been giving more second-chance loans to consumers whose credit ratings were savaged by the 2008 financial crisis. In fact, one in four auto loans is currently subprime. But we're starting to see more caution from major banks in the industry. Wells Fargo recently made news, for instance, when it decided to cap subprime loans at 10% of its total lending.
That's where CarsDirect may be able to help. Our national network of dealers work with lenders who specialize in loans for borrowers with imperfect credit, and our no-obligation application process takes only 60 seconds.
In addition to securing financing for the transportation you need, with responsible repayment you'll also continue to rebuild your credit. Over a three year period, for instance, Equifax found that deep subprime consumers who had an auto loan improved their credit score by 52 points, 62.5% better than the 32 points gained by those without an auto loan.
