Subprime auto loans are a little different from traditional financing. And since they’re different, you may have questions about the process, whether it’s right for you, and how to get one. We’re here to offer some guidance.
1. Who Subprime Car Loans Are For
Subprime vehicle financing is designed for borrowers with less than perfect credit. If your credit situation is similar to any of these situations, then a subprime auto loan could be for you:
- You’ve gone through bankruptcy
- You’re a new borrower or first-time car buyer
- Your credit score is below 660
- You have situational bad credit
- You have a repossession over 12 months old on your credit reports
- Your credit history has negative marks
Subprime lenders can assist borrowers in many unique credit situations. If you’ve struggled to get an auto loan approval with traditional lenders, then subprime lending could be the next step.
2. The Subprime Car Loan Process
Subprime financing involves a different order than traditional auto financing. You first need to qualify for a loan before you can choose a vehicle. If you’re approved, the subprime lender sends the special finance manager the payment call, which is the maximum monthly payment that you qualify for. From there, you choose a car that fits your needs and the lender’s requirements.
How the steps break down:
- Find a special finance dealership
- Apply for a car loan with subprime lender(s)
- Lender determines eligibility
- If approved, a payment call is sent
- Choose a vehicle and take delivery
3. Interest on Subprime Car Loans
One of the most common questions we get here at Auto Credit Express is on what interest rate a user can expect with a subprime auto loan. We’re not a lender, but we can tell you that borrowers in our dealership network have an average interest rate of around 13%.
Where there’s bad credit, there’s almost always a higher interest rate. Your credit score is key in determining what rates you can qualify for, and every lender may have a different definition of what bad credit is. For the most part, borrowers with credit scores below 660 are likely to be considered bad credit borrowers or subprime borrowers. If you have a credit score in that range or lower, then you may have to plan for a high interest rate. However, refinancing is a common route bad credit borrowers explore to lower their interest rate on their vehicle later on.
If you’re looking for a lower rate despite a poor credit score, consider getting a cosigner. Cosigners can improve your eligibility chances for a car loan and may help you land a lower interest rate than if you were to apply alone.
4. Down Payment Requirements
Odds are, you’re going to need a down payment. Most subprime lenders require at least $1,000 or 10% of the vehicle’s selling price down. Trade-in equity, cash, or a combination of both can be used to meet this requirement.
Down payments save you money as a borrower, too. Since auto loans are almost always simple interest, the less you borrow, the less you pay in interest charges.
5. Income Requirements
Most subprime lenders require that you have a minimum monthly income of around $1,500 to $2,500 before taxes. This requirement must be met with a single source of income. In general, subprime lenders prefer borrowers with W-2 income proven with recent computer-generated check stubs.
If you have 1099 or other income sources besides W-2, you may need bank statements, tax returns, or other additional supporting documents.
6. Subprime Lenders Work Behind the Scenes
Subprime lenders are indirect lenders, meaning they’re signed up with special finance dealerships and you don't meet with the lender in person. Instead, the special finance manager at the dealership acts as the middleman between you. This differs from a direct lender such as a bank or credit union, where you get financing right from the source and take it to the dealership with you. Direct lending is more difficult to get if you're struggling with a low credit score.
7. Finding Subprime Lenders
You can apply for a subprime car loan at a dealer that’s signed up with these lenders. Dealerships signed up with them are called special finance dealers, and there are many across the country. However, they’re always easy to spot, since many dealerships don’t advertise their lending partners. So how can you tell which ones are signed up with the lenders you need?
At Auto Credit Express, we want to make the search for your next auto loan easier by matching you to a special finance dealer in your local area. Get started right now by completing our free car loan request form. We’ll look for a dealer near you with no fee, and no obligation.