Our team deals with people in all kinds of situations wanting to buy a new car. Some will inevitably need a subprime car loan. But what exactly is it and why would you need one?
Our Ohsweken auto loans team explains what a subprime car loan is, how it differs from standard loans and how it works.
What is a subprime auto loan?
A subprime auto loan is a special type of vehicle finance usually used with those with poor or no credit score. If you’re new to Canada, just turned 18 or have had credit issues in the past, this is the type of loan you will probably be offered.
Subprime auto loans are higher risk products so carry a higher interest rate.
If you have no credit history or your history was built in another country, you will be an unknown quantity, which lenders view as a risk.
If you have had credit issues in the past, you will also be viewed as a higher risk. Perhaps unfairly, but that’s the system we have to work with.
Either way, the higher the risk you are perceived to be, the higher the interest rate you’ll be charged to borrow the money.
There is no official level at which subprime lending kicks in. The average credit score for subprime lending is usually between 450 and 650 but this can vary.
How do subprime auto loans work in Ohsweken?
Subprime auto loans work in the same way as standard loans but the initial checks will be much more thorough.
You will need to do your initial research, check that you can afford the auto loan, make sure you can afford repayments along with running costs and get prequalified.
We can help you with most of those things.
You’ll need to prove everything. You’ll need proof of income, proof of outgoings, proof of having paid off debts and of having recovered fully from whatever situation you found yourself in before.
Lenders will be particularly interested in your earnings, so be expected to show age slips or statements, bank statements showing a consistent income and any supporting evidence you might have for income.
If you’re self employed or a contractor, you’ll need three months or more of bank statements, your last tax return and any official paperwork you have showing consistent income over the past couple of years.
Are there Alternatives to a Subprime Car Loan?
There are a couple of alternatives to subprime auto loans if you don’t want to use one.
Waiting until your score improves – Less than ideal we’ll admit, but it’s an option if you don’t want a subprime auto loan.
Using a co-signer – Co-signer auto loans are an alternative if you know someone with a good credit score willing to come in with you on the loan.
Buying a car for cash – Another less than ideal option but an option nonetheless. You could use what you saved as a down payment to buy a much cheaper car until you can improve your credit score.
For those of you who know that you have a challenging credit situation, please visit Dixie Auto Loans where we have a team of credit specialists ready to help you get approved for a car loan today!
For any questions or concerns, please don’t hesitate to contact us here!