When shopping for a new vehicle, some of us are faced with past credit problems. If you have a poor credit score or no credit score you’ve probably heard the term “subprime loan” thrown around a lot. You have enough to worry about when shopping for your new vehicle without hearing new terms and jargon. To help ease the process we can help you understand what a subprime loan is and how it can help you get the car, truck or SUV you need.
What is a subprime loan?
A subprime loan is designed for people who have low credit scores. They enable people who may not have the greatest review with creditors to get a loan at a higher interest rate than other lenders or “prime” loans may receive. These loans a typically labelled as being at a higher risk of default than other loans. There is no cut and dry line on what distinguishes a prime rate from a sub-prime rate so it’s a good idea to speak with your reputable auto lender to discuss your rate and what you can afford. While there is no strict definition, the Federal Reserve defines a subprime loan as a loan that carries an interest rate at least three percentage points higher than the rate on a US Treasury bond that has the same term as the loan. Keep this in mind going forward in your auto loan!
How can a subprime loan help you?
A subprime loan is a second chance. You can secure an auto loan and get the car or truck you need! Yes, the interest rate is higher but if you can afford the payments it may be worth more than just a new vehicle to sign up for a subprime loan. Consistent making payments can help raise your credit score over time and ultimately get you a better rate on loans in the future! Because there is no fixed subprime rate, it’s a good idea to shop around for a loan before signing up and it’s an even better idea to start with a lender who has a great reputation.
Shopping for a car can be stressful but it doesn’t have to be. Doing some research can help make this process easier. Knowing what a subprime loan is and how it can work for you and your financial needs is a great first step. For more information about subprime loans, use the resources around you including dealerships like Frank Myers Auto Maxx in Winston-Salem, NC. Getting a loan can be your first step out of bad credit, and enable you to keep shopping for the car you need!