Having bad credit doesn't mean you won't be able to get a new car when you really need one. If you have a good job and a steady income, you can be approved for auto financing.
Bad credit scores have been sweeping the nation since the Great Recession of 2008, and now those who were hit the hardest are getting some good news. Auto lenders are, again, lowering the requirements to get approved for a car loan. Now, all you need is:
- A good job
- Some sort of down payment
- Proof of residency
- Proof of income
This is possible because investors are starting to buy auto loan bonds that are a bit riskier. The fifth anniversary of the Federal Reserve's policy to keep interest rates near zero is approaching, and the market for special auto financing is growing drastically.
Car buyers with damaged credit are making up a large percentage of all vehicle sales in the United States, 27% to be exact. Experian Automotive states that this is the largest percentage of subprime car buyers since 2007 when they started tracking this data. This is a huge jump from 18% in 2009 when lenders were being very stingy with car loans during the recession.
Buy a Car, Not a House
All Americans have a dream to someday own a home, but if your credit scores are less than perfect, it may be best to steer clear of that right now. The housing market hasn't quite jumped onto the bad credit band wagon just yet.
Auto financing is easier to get with bad credit because vehicles are an underlying asset. For instance, they are more easily valued, easier to repossess, and also the loan payment is made a priority because people need the vehicle to get to and from work.
Experts from Experian say that until you rebuild your credit scores back into good standing, it's better to opt for a new car over a new home – at least until the mortgage companies jump onto the wagon.
Cars are cheaper, and generally take a lot less time to pay off; meaning that you will have a chance to boost your credit score fairly quickly while paying your loan off. By the time you own the car outright, your credit scores should have improved and you should be able to qualify for a home mortgage at a favorable rate.
High Interest Rate Auto Loans
While most bad credit car buyers can get approved for a loan, it is often at a higher interest rate than the national average of 4.2%. These consumers pose a high risk to the lenders, and therefore, will be subject to fairly high rates.
According to Chrysler Group LLC, the average loan for a Dodge vehicle was at 7.4%, and 23% of the loans were over a 10% interest rate – which makes Dodge the brand with the highest number of loans over a 10% interest rate.
These interest rates may seem outrageously high to you, but most people with poor credit are just glad to be approved and will take just about anything. In fact, since Dodge has started offering special finance auto loan approvals, their sales have been increasing – as of October their sales have increased by 17% from last year, making it their 43rd straight month of increased sales. They're obviously doing something right!
The Key to the Auto Recovery
There is debate that the key to recovering the automotive crisis was lenders loosening the reins on the credit requirements. Some people say that this is only going to cause more issues for the consumer when their interest rates are so high that they can no longer afford their loan payment; while others say that, with all the discounts and incentives being offered by dealerships, this outweighs the interest rates and helps keep the loans affordable.
Regardless of what the outcome is, the customers that have recently gotten a car on credit are extremely thankful for the opportunity. If they continue to make their payments on time and improve their credit scores, they may be eligible for auto loan refinancing in the near future. This will allow them to qualify for a lower interest rate on the loan and get a lower monthly payment.
As We See It
Subprime lenders are popping up everywhere throughout the United States and they have become lifelines for some bad credit buyers that are desperate for a new car. While you may be paying a higher-than-average interest rate, it's a way for you get to and from work every day and help yourself to qualify for a better rate on your next auto loan.
At Auto Credit Express, we work with a large network of car dealerships accepting customers with bad credit scores, and they have the tools and experience needed to get you approved for a subprime auto loan. If you're in the market for a new car and want to take advantage of the opportunity today, you can use our online car loan request form to get started.