Let’s just rip the bandage off: talking about credit scores, credit history, and financing, in general, can be stressful. We get it, and that’s why we have financing experts here at Faith’s Automotive who are committed to helping all of our customers find fair financing that meets your needs with payments that fit your budget. That said, if you’ve been looking for subprime auto loans near Brattleboro, VT, then you may have had a pretty difficult and frustrating experience. It can feel like you’re fighting uphill, but subprime loans exist to provide loans for people who some lenders would view as high risk and not offer a loan to otherwise.That’s the bad news; the good news is that you’re not alone in this, and you may have more options and resources available to you than you realize. The key to all of this is realizing that knowledge is power when it comes to handling your credit score and improving it—the more you know, the easier things become. For many people, information about how credit works and what terms like “subprime” even mean aren’t things anyone took the time to explain, making everything much harder. Let’s dig into the realities of subprime loans, credit scores, and how you can make your car-buying experience easier.
What Is a Subprime Credit Score?
First, let’s take a moment to review some credit score basics and understand how it’s determined and what something like “subprime” even means. Your credit score is simply a numerical value based on how well you’ve managed credit and loans in the past, with a range between 300 and 850—higher is better. A wide range of different factors impact your credit score, but it’s mostly based on how much debt you currently have compared to your income, how much of your available credit you’re currently using (how much you have on credit cards, for example), and how well you’ve paid-off loans and credit cards in the past.
This is a simplified version of things, but it’s basically all you need to know—your credit score tells potential lenders how well you’ve handled debt in the past and how much of a risk you might be for a loan in the future. A high credit score, called prime or super prime, means you don’t have a lot of debt compared to your income, that you don’t have too much of your available credit currently being used, and that you’ve made payments on time, and paid off loans in a prompt manner. It doesn’t mean you’ve never had debt, just that you handled it well from the lender’s perspective.
A low credit score, on the other hand, is referred to as subprime or deep subprime, and indicates that someone likely has too much debt for how much income they have, may have a lot of their available credit currently in use (high balances on credit cards) and has made late payments or failed to repay a loan in the past (called defaulting on a loan). In other words, bad credit doesn’t mean someone is a bad person; it typically means that someone has made some mistakes or that life events have created debt beyond their ability to manage.
What Is a Subprime Auto Loan?
A subprime auto loan is simply a loan that’s specifically intended for someone with subprime credit, which is to say, a low credit score. Not all lenders offer subprime loans because they’re potentially higher risk; a lender looks at a low credit score as a warning that the borrower might not be able to repay the loan. This basically looks like a potential loss to a lender, and most lenders—banks, credit unions, and other financial institutions—aren’t generally in the business of taking losses when they can avoid them. Some lenders, for a variety of reasons, are willing to work with someone who seems like a high-risk borrower and will provide subprime loans.
Since these loans are meant for borrowers with a higher risk of default, they typically come with higher interest rates on them, so they cost more than a loan to someone with a higher credit score. The greater the interest, the more likely a lender can make their money back on a loan even if a borrower ends up defaulting on it, and this presents more incentive for lenders to offer these kinds of loans. This can feel unfair for borrowers, but as long as you work with a good dealership, they can help you find a subprime auto loan with acceptable terms and the lowest interest possible.
Why Do Subprime Loans Exist?
The simplest answer is that subprime loans exist because there’s a need for them, but they do present a much greater risk for potential default than loans to prime or near-prime borrowers. We’d love to say that’s not true, and even though our experiences with a wide range of borrowers show that people make every effort to pay their loans on time, statistically, a subprime loan does have a higher risk of default, which can result in a loss for a lender. This creates a special situation where only certain lenders are willing to take this risk, and as a result, this special category exists for loans designed to help people with low credit scores.
How Can You Improve Your Credit Score?
Struggling with a low credit score and finding few options for subprime loans can be disheartening, but there are ways to make things easier. One of the best ways to improve your score is to pay off any loans or debts you can—we know that’s easier said than done, but every little bit helps. Even paying off a single credit card so it no longer has an outstanding balance can help improve your score. Just don’t close the account after you pay it off since this would reduce your available credit and actually harm your score.
Making payments on time is absolutely vital as late payments, or missed payments, can have a tremendously negative effect on your score. This means that getting a subprime auto loan if it’s your only option at the moment, and making all of your payments on time is a great way to help improve your credit score and get back on top of the situation. Having a cosigner with prime credit to help you with your auto loan can get you much better terms if possible. Just remember that this means they are also on the hook for the loan, and if you default on it, their credit score will be greatly lowered, so only accept this if you are committed to making your payments. The last thing you want to do is harm a relationship with a family member by defaulting on a loan or even making late payments that they cosigned on.
Are You Ready to Find the Right Car Loan?
Navigating all of these options and finding the right car loan can be tricky, and your decisions will impact your budget for many years to come, which is why it’s so vital you make the right choices now. Having someone by your side to help you throughout every step of the process makes a tremendous difference and can help make it much easier to find the right loan that meets your needs and fits your budget.
No matter what your credit score looks like, you deserve to have a great shopping experience that results in you getting a vehicle you love, with payments that won’t keep you up at night. Call or come visit us at Faith’s Automotive to work with one of our financing experts and find a solution that meets your needs.