Subprime Auto Loans: Buying a Car with Bad Credit

As bills increase – and salaries don’t – people are finding it more difficult than ever to manage their finances. As a result, many are finding themselves in a place they only thought irresponsible college students resided – in the land of bad debt. Believe it or not, it is not difficult to find yourself in this magical land of jeers and sneers when you factor in the rising costs of gas, food and mortgages forcing many to make tough decisions. Couple this with everyone now reporting to the credit bureaus, including utility companies, and you can easily have a recipe for debt disaster. The large number of people with subprime credit has resulted in companies dishing out new “at your own risk” opportunities – including auto dealers. So if you want to get a new car, you may have an opportunity to get one with subprime auto loans – at your own risk.

There used to be a time that both no one and everyone could buy a car. I say this because while it was not as easy to have a loan offered to you to buy a new car, cars were so much cheaper that you didn’t really need credit to get your car – you could save a few pay checks and be good to go. Of course this day is long gone. Now anyone can get some form of credit, partially because car costs are through the roof. But the more there is being extended, the more room there is to default. So now we find that many people have what is called subprime (or bad) credit.

In the past, auto dealers could discriminate and decide who they wanted to have bought their cars, but no one in any salary bracket lower than “rich” can pay for one in cash, so in order to move cars off of their lots, they began offering financing to everyone – some just have to take subprime auto loans.

Subprime auto loans are designed for the person with a credit score of less than 620 who is viewed as being at risk of not fulfilling their financial agreement to pay for their car. They are thought to be people who will default on their loans and eventually have their cars taken. Auto dealers plan for all of this by working with financing companies that will accept anyone’s credit – then some dealers work in their own high rates to skim off of the top; they have nothing to lose by doing this as they figure your desperation to buy a car will trump any punishment they dish out for you coming to them with bad debt. 

Having subprime credit, however, does not mean that you have to take a beating for mistakes you’ve made and hard times you come into. If you go to a dealer armed with knowledge and a great poker face, you can still walk away – I mean drive away – with a car note that won’t force you to sell an organ each month to cover it.

Understanding Subprime Auto Loans

The first thing you must know about taking out subprime auto loans, whether from a financial institution or as a part of your car note agreement offered by the financing company that works with the dealer, is that you don’t have to be manhandled into anything just because you are the holder of bad credit. One thing you always have in your corner is the ability to get up and walk away – never forget it. So while the lender may try to throw extreme interest rates at you, or the auto dealer may tell you the chances of you finding a better deal are slim, you still have the power to walk away and do more research yourself.

The best way to take your power back when working to take out subprime auto loans is by educating yourself. Here are some ways you can do this:

Know your Credit Score – By knowing your credit score from all three bureaus, you can visit institutions and dealers with the knowledge ahead of time. If they try to tell you it is much lower than what you’ve already confirmed, you can catch them in their lie. And it is important that you do this because your credit history is the major determining factor in how high your interest rates will be. Also, by getting access to your credit report in this way, you can look at any errors and maybe even locate some listings that can be taken care of if you are in an improved financial situation.

Take out Your Own Subprime Auto Loans – While you can get cheated by both a financial institution and a car dealership that works with a financial institution, it is a much idea to go to the financial institution on your own to take out a loan. The one major benefit you have in doing this is that they don’t have a connection to any dealership – heck, they don’t even know where you’re going to buy the car – so they can only charge you their interest rates and let you walk out of the door. However, if you go directly to the auto dealer, he is going to find a financial institution for you, then likely add on additional rates, while telling you they are a part of the financing deal, to make a greater profit. With your own check from a financial institution, you can walk away and go to the next dealer with the loan money. But when going directly to the dealer, you are likely to get robbed everywhere you go. 

Taking out subprime auto loans doesn’t have to be the end of the world, especially if you approach the situation with intelligence and confidence. Of course, the best route to take would be to begin correcting your credit as soon as you can. But that option cannot always take precedence over the pressing need for transportation to get to work. So if you find yourself in the midst of subprime auto loans make the best choices you can so that you can hopefully drive away with a great car and even better financing plan.