Subprime Car Loans: 5 Important Considerations

Subprime car loans have recently become quite popular as they are an easy way for those with bad or poor credit to obtain financing for a car. While this kind of loan may appear to be a great financial opportunity, there are some important terms and information you should know about before signing on. Read the following which will help you to decide if a subprime car loan is really the right loan for you. 

1. Higher Interest Rates

Poor credit auto loans will have slightly higher interest rates. Lenders may take advantage of those with poor credit and charge exorbitant rates on their offered loans, especially a subprime car loan. Be mindful of the interest rate for the loan and also be cautious of loans that offer low introductory rates or large rebates on a vehicle that may be overpriced.

2. Credit Score Procedures

Normally, prime lenders will offer what is referred to as an "A" loan to those who have a 650 or higher credit score, while subprime lenders will offer loans to those who have a score that’s less than 650. However, that credit score cut off has become a grey area and some lenders have been offering subprime car loans when the individual qualified for a prime auto loan. This being said, be vigilant in asking questions of the subprime lender and finding out the smallest details about the rate for your loan.

3. Early Payoffs

Most subprime car loans are written with pre-payment penalties that can make an early payoff impractical or even impossible. If this kind of option is important to you, be sure to read the loan very carefully as a pre-payment penalty will cost you a substantial amount and could hurt your budget in the future.

4. Watch for Large Balloon Maturities

Many subprime car loans require a large balloon payment at the end of the loan in order to obtain clear title to the vehicle. While this isn't always the case, you should read the contract carefully to avoid this kind of financial responsibility. You do not want to be tied to making such a large payment when you have already been making substantial interest payments already.

5. Credibility of the Lender

When seeking a subprime car loan, be mindful about the lenders you seek out. While some lenders are financially stable and trustworthy, it only benefits you double check the lenders through the Better Business Bureau, through an internet search, or other thoroughfare that helps to shed some light on the lender's business dealings and stability. Overall, you want to know if the lender can give you a loan that is fair and will allow to make payments within your financial means.

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