Nearly everyone, at some point in their life, may use a loan for an automobile. Some people might opt for a used vehicle while others prefer a brand new one. Prices vary greatly, depending on where you live, what type of vehicle you are looking for, and what kind of warranty you want.
Interest rates can be a problem when attempting to obtain a loan. The average rate is about 2.5 to 3% interest, depending on several factors including the demographic area where you live and your credit history. Credit scores lower than 550 can leave you with interest rates of 15% or more, which ends up as a much higher payment.
Subprime Lending
Subprime loans, which can also be referred to as near-prime or second-chance, are usually given to those who have had trouble in the past in making payments on a loan. The cause of your bad payment history is rarely taken into consideration when you are applying for a loan. The fact that you are a subprime borrower does not mean that you will not be able to get a loan to purchase an automobile. It does mean that you will wind up paying more because you are a greater risk. Subprime auto loans are designed for subprime borrowers to finance auto purchases. Since the most recent recession, the use of subprime auto loans has become popular for auto finance companies and banks to offer. Since car purchases are generally shorter time frames and lower amounts than home loans, the economic risk is seen as less serious than the subprime home loan situation which cause the last recession.
Using Subprime Auto Loans
You might have a certain payment in mind as you make your way to the auto dealer. For instance, $300 per month might be what you consider a great payment and it is likely that you will be able to negotiate that, even with subprime credit. In the end, the “perfect payment” could wind up costing you a lot more money. The longer it takes to pay off a vehicle, the more interest you will pay. In a subprime situation where interest rates are much higher than normal, this can add up quickly, especially if a five-year loan turns into a seven-year loan to accommodate your payment needs. While knowing how much you can afford to spend each month is a financially responsible judgment call, going into the loan blindly in regards to interest and associated fees can mean trouble.
Make Sure You Read The Fine Print
As the old saying goes, the devil is in the details, and that was never truer than with subprime auto loans. Since you are a risk to the lender, the fees that can be found in the fine print can vary greatly from dealer to dealer. Look out for various fees like transfer fees, processing fees, vehicle storage fees, dealer preparation fees, delivery charge, advertising fees, vehicle identification number etching, fabric protection, paint protection. All of these fees can add up to a significant number. Knowing what those fees are can give you a little more opportunity to negotiate the price of the vehicle and some of the other loan terms as well. Make sure to read all of your paperwork. Ask questions when you see any fees that were not discussed with you. Don’t be afraid to ask questions. Dealers are counting on wearing you down with long wait times so that you won’t have the patience to ask more questions.
Be Realistic
Before you sign any paperwork, you need to take a careful look at the whole situation. You might need a car very badly and it could be that the only loan available to you is the higher interest option. However, if you go into a subprime loan without knowing if you can pay the vehicle off, you could wind up with a payment that you can’t manage. On the other hand, if you find that you will be able to complete the process and completely pay off the vehicle, a subprime loan could turn into an opportunity to make your credit look better than before.
Auto Loans and Bankruptcy
Whether the auto loan is subprime or not, either type can be discharged in a bankruptcy. A bankruptcy an wipe out the left-over debt if you surrender the car. Find out more about how bankruptcy can impact auto loans here: Bankruptcy and Auto Loans
