Taking an overall look at the auto loan process so that consumers know what to expect when buying a car with questionable credit
What we know
At Auto Credit Express we've spent over two decades helping car buyers with bad credit searching for online auto loans find those new car dealers that can give them their best opportunities for loan approvals.
We've also discussed a number of aspects surrounding the car loans offered to consumers with poor credit. Today, however, we're going to tie all those pieces together. That is, what to expect when buying a car with bad credit.
Which consumers need a high-risk car loan?
Generally speaking, higher-risk (subprime or non prime) car loans are those offered to car buyers with FICO scores of 640 or less. Typically, loans above that line fall into prime or near prime territory. And while subprime lenders usually will consider applicants with better credit scores, most banks, captive finance companies (such as Ford Motor Credit) and credit unions will as well – giving consumers with better credit a much wider choice along with lower interest rates.
Who are these subprime car lenders?
There currently are at least 30 national and regional lenders that offer subprime lending. A handful of the national ones – such as Capital One, Chase, CPS and Wells Fargo - are publicly-held corporations doing business on one of the major exchanges. The rest are, for the most part, privately held. And while a few will lend money directly to buyers, most, because of the paperwork and documentation involved, only lend through franchised new car dealers.
What is this additional paperwork?
By their very nature subprime loans carry more risk that prime loans. Because of this, these lenders that typically will require borrowers to furnish additional documentation to prove such things as income and residence. The lender may also require payment records if you rent or are buying your home on a land contract, since records of these transactions are not usually contained in credit reports.
What kind of interest rates are there?
This is always the big question from and the answer isn't as simple as it might seem. The interest rates charged by these lenders are based on a number of factors and, as with prime lending; there are different credit tiers. At the higher (better) end of subprime, interest rates can be a few points above near prime rates, while, at the lower end, annual percentage rates can be as high as 25 to 30 percent.
Is it cheaper to borrow from a BHPH dealer?
When most of us got into the car business we quickly learned the difference between price and cost. The price is what you pay for a vehicle. The cost is the total expense over the period that you own it.
In many cases consumers can finance a used car through a local tote the note car lot and the price will probably be less than buying one through a new car dealer. But in most cases the selling price is lower because the car is older - resulting in higher maintenance and upkeep costs. Furthermore, it's not uncommon for these buyers to find themselves replacing brakes, steering racks, exhaust systems and even entire engines in some of these vehicles. Sometimes these repairs can double or even triple a vehicle’s original cost. Older cars also tend to be less reliable – especially in the winter months when they're needed the most.
Secondly, due to the age of most of these vehicles, any warranties that might be available are very limited as to the vehicle systems that are covered and how long this coverage is available.
Finally, most of the smaller BHPH dealers don't report loans or payments to the credit bureaus. This means most of these buyers will find themselves in the same credit position the next time they need transportation– even if every payment was made on time.
At the same time, not all new car dealers are willing to work with customers that have experienced credit difficulties, while a few that supposedly do don't always do such a good job of it.
What we offer
Auto Credit Express specializes in helping applicants with car credit issues find those dealers that can give them their best chances for approved auto loans.
So if you're ready to reestablish your auto credit, you can begin now by filling out our online auto loan application.