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Subprime Car Loans in Flamborough for Beginners

Subprime Car Loans in Flamborough for Beginners

If you have bad credit, there is nothing to be embarrassed about. Every adult will fall upon tough financial times in their life. The good news is your credit score can go up quickly which opens up a world of opportunities especially if you want to buy a car.

 

Our Flamborough auto loans team has put together this quick guide for anyone looking at subprime car loans. We hope it helps!

 

Subprime Car Loans 101

 

The term subprime has negative connotations due to the 2008 economic downturn caused by mortgages issued to people who should not have received those loans. All the term means is that a person does not meet the standardized lending criteria for prime or preferred terms.  The current prime interest rate set by the Bank of Canada is below 3% so if you qualified for a prime auto loan, the rate would be below 5%.

 

To qualify for prime auto loans, you would need verifiable income and a credit score above 680. Each auto lender has its specific criteria but that score is a safe bet. If you have not checked your score already, Credit Karma and applications like it are a great free resource to get your credit score.

 

Lenders who offer subprime car loans have to charge a higher interest rate to offset the added risk associated with these loans. There is a greater risk that the borrower will not be able to make their payments on time, every time. Fortunately, some lenders specialize in these deals but they usually deal directly with car dealerships, so you may not be able to access them on your own.

 

Challenges Associated with Subprime Auto Loans

 

The biggest challenge is the interest rate being charged which can be as high as 25% depending on the borrower. This high interest means that the portion of the monthly payment that is applied to the principal is significantly lower than what a prime loan would offer.

 

Not to get overly technical but the auto loan is broken down into monthly payments based on the premise that the value of the car will be higher than the total amount owed. If the car payments take 84 months to repay the loan in full but the value of the car depreciates to 0 in 60 months, that creates a problem.

 

The only way a person can qualify for these loans is to pick a car that has a considerably lower retail price. There is a very limited supply of used cars to choose from and they are all selling at full price so you will need to adjust your expectations. This can be very painful if you were hoping to buy a new car but only qualify for a car that is several years old.

 

How to Qualify for Prime Auto Loans

 

If you are currently having credit issues, now is a great time to take action and get things back on an even keel. Start by making sure you pay all of your debts on time, all the time. While paying the minimum amount owed on your credit cards is a great first step, make it a priority to pay off the debts as quickly as possible.

 

There is no denying it will take some serious effort on your part to fix your credit issues, but the good news is once your credit score falls into the prime category you will be able to get a great new car at a very competitive rate.

 

If you need help or advice on anything to do with auto loans in Flamborough, contact Car Nation Canada today, we can help!

 

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