Consumer Car Buying Advice Blog

Separating myth from reality when shopping for a bad credit car loan

Bad credit car loans

At Auto Credit Express, we have, for 17 years, helped customers with bad credit turn their lives around and reestablish their credit while purchasing a car with a bad credit car loan. And while the term “expert” is used rather loosely on the internet, we do consider ourselves to have had a great deal of experience in the subprime automotive sector.

With that in mind, we feel it is necessary to dispel some of the “myths” that seem to be circulating around the internet concerning the bad credit car loan process.

#1 Locating a lender

Myth – “Finding a bad credit auto lender is simple. When buying a new or used car, the auto dealer may offer bad credit financing, or refer you to a good lender. Even so, car buyers should consider arranging their own financing. Bad credit auto loans are tricky, and some lenders will take advantage of you. For this matter, it helps to choose a good lender and know your available options.”

Reality – Finding a bad credit auto lender is anything but simple. Most subprime auto lenders only do indirect lending through franchised new car dealers (a few work with used-only dealers, but not many). Finding a bad credit car loan lender that lends directly to the consumer is very difficult. HSBC, one of the few subprime lenders that participated in direct lending, pulled out of the U.S. market over a year ago.

#2 FICO score

Myth – “Some auto lenders classify sub prime borrowers as persons with scores below 640. On the other hand, another lender may qualify a borrower with the same score for prime rates.”

Reality – The threshold for subprime is generally recognized to be an “auto enhanced” (weighting the score for prior auto credit) score of 640 or less. Between 640 and 720, you may qualify for near-prime rates, while anything over 720 usually puts you in “prime” territory. Very few people will qualify for the best rates with a FICO score of less than 720. They may get financed by a prime lender, but their rates will be higher than the “most qualified” customers.

#3 Shop around for the best rate

Myth – Making comparisons is a surefire way to get approved and find the best auto loan rate. Auto lenders qualify applicants for varying rates. If you have bad credit, failing to shop around and obtain multiple rates will cost you more money. For example, a dealer’s finance company may charge an interest rate of 10%, whereas a credit union may charge the same applicant 8.5%. The percentage difference could save you $50 – $70 a month.

The best way to compare rates is to visit an online auto loan broker site. Request a no-obligation quote, and wait for a response. Each quote received will include details such as qualifying interest rate, loan approval amount, loan term, and estimated monthly payment. Review the quotes carefully, and pick the lender that offers an affordable deal.

Reality – It isn’t possible to rate shop a bad credit car loan since most subprime auto lenders only do indirect lending. You should certainly check with your local credit union to see if you might qualify for one of their loan programs, but even though their criteria might be more flexible, very few credit unions actively loan in the subprime sector. In addition, the interest rates being bandied about (8.5%, 10%) are nearly impossible to find if your FICO score is below 640.

The Bottom Line

At Auto Credit Express, our business is to help people with bad, blemished, bruised and tarnished credit buy cars and reestablish their credit at the same time. Our national network of affiliate dealers specialize in bad credit car loans. If you have any additional questions, our web site will help you determine how much car you can afford and, unlike other sites, our toll free number is listed on every page in case you have any additional questions.

When you decide to buy a car, our credit application can be filled out in the comfort and security of your own home. For more information, visit www.autocreditexpress.com.

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