How Do Subprime Car Loans Work?
Car shopping can be a lot of fun. You get to look at a lot of different options and even take them for test drives – arguably the best part of the entire process. However, finding financing can take the wind out of a lot of sails, especially if the potential buyer has a less-than-perfect credit score. Simply because someone has hit hard financial times or made some mistakes in their life doesn’t mean they can’t buy a car, truck or SUV. We all need safe and reliable transportation. Let’s take a closer look at how subprime car loans work.
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What is a Subprime Car Loan?
Basically, auto loans are divided into two primary categories, prime and subprime. Prime loans go to people with high credit scores, and subprime loans are a category of financing for people with credit scores falling between 580 and 669. Typically, subprime loans will come with higher interest rates because people with these lower credit scores are viewed as a risk. Subprime loans are similar to prime loans in that both are secured debts, using the vehicle as collateral.
Are Subprime Car Loans Bad for Buyers?
As we said before, everyone needs safe and reliable transportation and going through a financial rough patch shouldn’t be an insurmountable barrier to taking one home. Actually, applying for a car loan and making payments on time is an outstanding way to rebuild a credit profile. Subprime loans might be a little more expensive for buyers, but that doesn’t mean there aren’t at least a few advantages for people who use them. Some of the reasons to consider going for a subprime loan include:
- Giving people more options than traditional banks/credit unions
- Longer loan terms for lower monthly rates
- A considerably high loan value is available
- Lots of competition for subprime loans
Refinancing Subprime Loans in Canada
One of the most important things to know about subprime loans and their higher interest rates is they don’t have to last forever. Some people might be able to refinance their loan, getting themselves a break on interest payments. Your loan’s current holder might be able to accommodate you, but refinancing is a great opportunity to shop around for a better deal.
Davey Auto Sales is committed to helping people find the vehicle they need to meet their needs and, more importantly, their budget. Make an appointment with one of our product experts, today, if you would like to explore your pre-owned vehicle options.