Statistics from Bankrate.com show that the number of subprime auto loans is on the rise. That is great news for many Americans who’s credit score may not have fully recovered from the financial meltdown that began in 2008. We are going to list five lenders that are offering subprime auto loans, then have a look at the interest rate and terms you might have to deal with in order to qualify for one of these subprime auto loans.
Top Five Lenders Offering Subprime Auto Loans
- U.S. Bank
- Wells Fargo
- Capital One
Capital One has been a pioneer in the blank check auto financing sector. A brief synopsis of blank check financing is: you get pre-approved on the Capital One website, then you will be sent the necessary paperwork. Once that is received, you will be mailed a blank check that can be used to purchase a car. You must have another Capital One product…savings, checking, credit card…in order to use their blank check financing. Luckily, Capital One is one of the largest players in the subprime credit card arena, so there is a good chance you will find approval for a revolving line of credit as well.
What To Expect From A Subprime Auto Loan
The application process for a subprime loan is essentially the same as it is for every auto loan. The differences begin to appear when you are told the interest rate, the length of your repayment terms, and the amount of your down payment. You may expect the interest rate on a subprime loan to be high, but few people expect that it can legally be as high as 25 percent. Of course, only the worst credit scores (less than 500) or people who choose a buy-here-pay-here loan will face that high a rate. As a rule of thumb, you can expect an interest rate between 12 and 18 percent.
As for repayment terms. Most lenders want to minimize the risk associated with a subprime auto loan, so they will shorten the terms. For used vehicles, you may find yourself facing a term as short as 30 months. With a new car, you may only have 60 months available to you.
Large banks often require a down payment of 10-20 percent of the total purchase price in cash from subprime borrowers. Even if you have a trade, you will need to have at least $1,000 in cash as a down payment. Again, this is a way for lenders to minimize the risk of a subprime loan, but it also helps you keep your monthly payments down.