A Subprime Auto Loan is a welcome relief for borrowers who, for a variety of reasons, have seen their credit scores weakened to such a level they may ineligible for auto loans with most creditors. While prime lenders cater to borrowers with FICO scores near 640, subprime lenders work with credit scores below this and come up with repayment plans those borrowers can manage.
Do I Qualify For a Subprime Auto Loan?
Credit scores between 501 and 600 are considered subprime. Deep subprime credit scores fall below 500. Supbrime auto loans are most often sought for a new or used vehicle. If you are regularly employed and can show proof of income, you may qualify for a subprime auto loan.
No matter where a potential borrower seeks an auto loan, it is important to stay safe and avoid scams. $0 down and 100% approval advertisements may be enticing when you are desperate for a new vehicle. However, many of these deals hide the fine print. They carry astronomical origination fees, unreasonable repossession terms and illegal interest rates. Monthly payments may devour your income and put you at risk to default.
A good, reputable Subprime Auto Loan is an excellent way to not only drive a new vehicle but rebuild your credit. While you may pay a higher APR than with a prime lender, this small cost now will save you in the future when your loan payments raise your credit score.
What Can I Do to Look Less Risky For a Subprime Auto Loan Approval?
You can drastically increase your chances of finding a good subprime auto loan by saving for a down payment before you apply. You should also consider a used rather than a new vehicle. The same model vehicle will cost much less if it is used, and this lower cost may tip the scales in your favor for financing approval. Get a copy of your credit report, check for errors and fix them to raise your credit score before you apply.
Be sure to consider a lower loan term when you choose to finance a used vehicle. You should not pay over 84 months for a car that is already 3 years old, leaving you with payments when the car is 10 years old.
What Will I Need to Apply for a Subprime Auto Loan?
Because Subprime Auto Loans are directed to people with histories of poor or troublesome repayment abilities, your current income is your strongest evidence of repayment abilities. To apply for a Subprime Auto Loan, you will need:
- Your most recent tax return and W-2,
- recent employer paycheck stubs,
- or bank statements showing deposits if you are self-employed or earn cash wages.
All of these documents show earnings and credibility you will use to repay your loan.
Proof of residency (utility bills, apartment lease, mortgage statement) all show stability the bank needs to trust you will repay your loan. You may also consider a co-signer for the loan, who must meet the same eligibility requirements you do.
What Happens After I Am Approved for a Subprime Auto Loan?
- Make your monthly payments on time! This keeps you driving and repairs your credit.
- Contact your lender immediately if you feel you may miss a payment. You may get a special short-term reduced rate until you can get back on-track.
- Investigate automated/bank transfer options, which may reduce your interest rate.
- After a year or two of good, on-time payments, check out opportunities for a lower interest rate. Many subprime lenders do reward borrowers as they strive to rebuild.
- Periodically review your credit report to make sure your on-time payments reflect and are increasing your FICO score.