How do Subprime Car Loans Work?
“A subprime car loan is for a buyer with a low credit score.”
You can’t miss the “0% financing” advertising for vehicles these days. It is EVERYWHERE! This does not mean you qualify for this deal. Close to one-third of Canadians looking to finance the purchase of a new or used vehicle aren’t eligible for such prime interest financing, according to industry estimates.
Obviously that does not mean you won’t be sold a vehicle. It will just be through a subprime lender such as TD Non Prime, Scotia Dealer Advantage or, the newest Canadian subprime player, Canadian Title Loan Corporation.
Lenders or banks categorize customers based on their credit rating, those with a high credit rating are described as “prime” candidates and are eligible for lower interest rates on a variety of items purchased by credit. That would include buying a car.
Subprime Car Buying Customers
Subprime customers are those with a lower credit score due to past problems with their credit. Credit scores lower than 620 are considered to be subprime territory. This generally includes unpaid debt that is being reported to the credit bureau, bankruptcy, or late payments on revolving credit accounts. For example 30, 60 and 90 day late payments on your cell phone bill is reported and will show up on your credit report. Each of these will be reflected on your credit score in a negative way. Customer’s with poor credit scores are candidates for subprime lending rates.
It’s not unusual to be a subprime customer so don’t feel bad about it. In fact a large number of people are considered subprime (estimates as high as 40%). If you are unsure what your credit rating is, you can use a service like Equifax to check your credit score. Better yet find out what is bringing your credit score down and take steps to resolve the debt.
You are Not Alone
If you are trying to buy a car with a subprime credit score make sure you understand all the terms of the loan. Basically subprime car loans work exactly like prime car loans do except higher interest rates. It is important to know you are not alone and that your credit score is NOT a static number and can be improved. The goal would be to move from being a subprime candidate to a prime one. The fastest way to improve your credit score is by making ALL credit payments on time for a period of one year. This would include a subprime car loan, credit cards, mortgage and cell phone bills. Also you would be wise to negotiate any old debt that is still reporting on your credit report.
If you are one of the 40% who are car shopping as a subprime customer choose CALGARYDRIVES.
We are offering $0 down, no payments until next year and a trip for two to Las Vegas. APPLY HERE.
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