Auto Financing – Subprime Credit or Bad Credit

Posted Wednesday, Apr 10, 2024

Are you dreaming of hitting the open road in a new set of wheels but feeling held back by a low credit score? You are not alone. In the world of auto financing, having subprime credit can feel like hitting a roadblock on the path to purchasing a car.

Luckily, many lenders specialize in providing loans to people with less-than-perfect credit scores. If you find yourself in this situation, there are several steps you can take to increase your approval chances for an auto loan and secure favorable terms.

What Is Subprime Credit

Subprime credit refers to a credit score that falls below the prime lending range, typically below 620 on the FICO scale. It usually falls under a “Bad” or “Fair” credit score. A subprime credit score can result from various factors, such as late payments, high credit card balances, bankruptcy, or foreclosure.

Lenders consider individuals with subprime credit to be higher-risk borrowers, which can make it more challenging to qualify for loans and result in higher interest rates.

Here’s a breakdown of FICO credit score ranges according to Experian:

• Exceptional Credit (800 – 850):

  Borrowers in this range are generally considered low-risk and are likely to qualify for the most favorable interest rates and loan terms.

• Very Good Credit (740 – 799):

  Borrowers in this range are still viewed favorably by lenders and typically qualify for competitive interest rates and loan options.

• Good (670 – 739):

  Borrowers in this range indicate some risk to lenders, so they face slightly higher interest rates or more stringent loan requirements.

• Fair (580 – 669):

  Borrowers in this range indicate high risk to lenders. They might find it more challenging to qualify for loans and may face higher interest rates, larger down payment requirements, or stricter loan terms.

• Poor (300 – 579):

  Borrowers in this range are usually rejected by lenders and need to put up collateral for a loan.

Options for Auto Financing with Subprime Credit

• Specialized Lenders

  Some financial institutions, known as subprime lenders, provide loans to people with poor credit. These lenders are more willing to work with borrowers with subprime credit scores, although they may charge higher interest rates to offset the increased risk.

• Credit Unions
  

  Credit unions are member-owned financial cooperatives often offering more flexible lending criteria than traditional banks. Many credit unions have programs specifically designed to help members with subprime credit obtain auto loans at competitive rates.

• Online Lenders
  

  Online lenders have become increasingly popular in recent years, offering convenient access to auto loans for borrowers with all types of credit backgrounds. Some online lenders cater specifically to people with subprime credit and may provide prequalification without affecting your credit score.

• Dealer Financing
  

  Many car dealerships offer financing options for buyers with subprime credit. While dealer financing can be convenient, it’s essential to review the terms and conditions carefully, as dealerships may mark up interest rates or include add-on products that increase the overall cost of the loan.

Tips to Improve Your Credit Score

• Pay Your Bills on Time
  

  Your payment history affects your credit score significantly. Make sure to pay your bills on time, including loan payments, credit card bills and utility bills. Schedule automatic payments or set reminders in your phone to avoid missing due dates.

• Avoid Opening New Accounts
  

  Opening multiple credit accounts at once can negatively impact your credit score. Each new account results in a hard inquiry, which is added to your credit report and can lower your score temporarily.

• Reduce Your Credit Card Balances
  

  Try to keep your credit card balances under a limit. Ideally, you should utilize less than 30% of your available credit on each card. Lower credit utilization ratios can positively impact your credit score.

• Maintain a Mix of Credit Types
  

  Lenders like to see a diverse credit history that includes different types of accounts, such as installment loans, credit cards, and mortgages. If you have a single credit account, diversify it to show your ability to manage various types of credit responsibly.

• Become an Authorized User
  

  Your friend or family members with a healthy credit history can help you increase your credit score. Ask them to add you as an authorized user on their credit card. This way, you will benefit from their positive payment history and credit utilization ratio, which may help boost your score.

• Dispute Inaccurate Information

  If you find errors on your credit report, such as incorrect payments, dispute them with the credit bureaus. They are required to investigate and correct any inaccuracies within a reasonable time frame.

• Keep Old Accounts Open
  

  The length of your credit history is another factor that affects your credit score. Closing old accounts shortens your average account age and lowers your score. If you have old accounts in good standing, keep them open to maintain a longer credit history.

• Be Patient and Consistent
  

  Increasing your credit score takes consistent effort and time. Focus on responsible credit habits, such as making on-time payments and keeping balances low and monitor your progress over time. For some time, curb your purchases and consider the Envelope Method to get a handle on your expenses.

While obtaining auto financing with subprime credit may require extra effort, it’s possible with the right approach. By understanding your credit situation, exploring all available options, and improving your creditworthiness, you can increase your chances of getting approved for an auto loan and purchasing the car you need. Remember to be patient and diligent throughout the process, and don’t hesitate to seek guidance from financial professionals if required.

Are you tired of being turned away because of your credit score? Columbus Auto Group West LLC offers people with subprime credit to drive a quality vehicle without emptying their bank. Whether you are looking for a fuel-efficient car or a family-friendly vehicle with room for everyone, we have got you covered. With our commitment to customer satisfaction and financing opportunities, we are confident that we can help you find the perfect vehicle to suit your needs and budget. For more information about our used cars, call (614) 272-2035.