Bad Credit Auto Loans
How do bad-credit car loans work?
On the surface, a bad credit car loan, also called a subprime car loan, works the same as a standard vehicle loan: the car buyer borrows money from the lender and pays it back with interest over a set number of months (usually 48 to 60, but other term lengths are possible). The main difference is that the interest rate will be higher to reflect the lender’s risk in working with people who haven’t shown a strong history of paying their bills on time or in full. Some of these lenders may also require automatic withdrawal of the installment payments, while others call for weekly payments instead of the typical monthly arrangement.
I know my credit score isn’t great, but how do I know if it’s in the “bad” category?
There are a few different credit score scales, but let’s look at FICO (Fair Isaac Corporation) since it’s the most universally used system. FICO uses a range of 300 to 850, and the categories are split as follows:
300 – 579: Poor
580 – 669: Fair
670 – 739: Good
740 – 799: Very Good
800 – 850: Exceptional
Lenders may use the above breakdown to decide which borrowers they’ll work with (for example, they may automatically reject applicants who fall below 670, eliminating anyone in the Fair and Poor categories), or they may set their own arbitrary cutoff score.
I’m working hard to raise my score, but it’s still low and I need a car now. What can I do?
Don’t give up! There are quite a few lenders out there who understand that people go through tough times, and that’s why they offer subprime loans. Now that you’re aware of where your credit stands, your next step is to apply with the help of an experienced auto financing professional. Our financing team at Balise Honda of Springfield will guide you through the process, answering all your questions along the way. We’ve established great business relationships with excellent lenders, and chances are good that at least one of them is willing to help get you into that new vehicle.
One important thing to keep in mind is that your low credit score is temporary – as long as you are responsible with your credit going forward. If you consistently pay all of your bills on time and don’t open any unnecessary accounts, your credit score will rise as your debt ratio falls and you prove that you’re committed to financial responsibility. Soon enough, you can even apply to refinance your loan into better terms, namely a lower interest rate.