Do you need car finance with a bad credit score? Maybe you have low income but still need to get around. You could even get car finance on benefits with the right lender.
However, this type of lending is in the category of subprime credit, with greater risks than prime-rate loans. That said, when you need a car, subprime car loans offer a bridge. Just be aware of how they differ from prime-rate loans and pay attention to the risks.
Where do you start? We’ve got you covered.
Here is your guide to subprime auto lending.
What Are the Potential Rewards of Subprime Auto Lending?
There are many benefits to subprime loans. Here is a roundup of what you can expect to get. Ensure you have the means to repay before you apply.
Get the Car You Need
A new car could open greater employment options and improve your quality of life. If you’re willing to accept higher interest rates in exchange for credit approval, you could get back on the road in no time.
Build Your Credit Score
With no credit history or bad credit, prime-rate loans are out of reach. A subprime car loan helps you create a new credit history or make your existing one better. Make sure you can afford the repayments and be honest about your income-expense ratio.
Enjoy Flexible Repayment Terms
The best subprime car loans offer repayment terms to suit you Rollovers are an option to enquire about too; ask what charges to expect if you need to defer one month.
What Are the Potential Risks?
Stay attuned to what you could lose with a subprime loan. Mitigate these risks by assessing your income and expenses.
Damage to Your Credit Score
Subprime loans could boost your score if you repay on time, but if you fail to do so, your score could plummet. If you have no credit history, this would be a less than ideal place to start. If you have bad credit already, defaulting on a subprime loan could make it worse.
High Interest Fees
High APR costs add up fast, and with each missed repayment, your total increases too. This can lead to a cycle of debt. Avoid this situation at all costs.
Repossession of Your Car
Buying your car with a loan means failing to repay could result in repossession. If you needed your car for a new job, would be a severe problem. Any other commitments you use your car for, like school and shopping, could be far more difficult too.
A Viable Option When You Need Car Finance
Ensure you can repay your loan and make a solid plan of how you will do it. Stick to this plan, and you have little to worry about. Always leave yourself an emergency fund for unexpected costs.
We hope you found this guide useful. For more financial tips, browse the rest of our articles today.