Want to buy a car but has poor credit? Don’t worry. At present, bad credit is no longer a hindrance to purchasing a vehicle. Now is a good time to finance an auto purchase because more lenders are granting subprime auto loans. In fact, subprime auto loans are the ones boosting auto sales this year. We at San Diego Auto Approval Center have always welcomed bad credit borrowers, and now it seems other lenders are following our lead.
Banks and Subprime Borrowers
In the past, banks were not an option for most subprime borrowers. Banking institutions are known for their tight lending standards, which became even tighter in 2009 when the U.S. economy faced recession. For a long time, individuals with tarnished credit had to seek other sources of loans if they needed to purchase a car.
But times have certainly changed—big banks have lowered their credit requirements and therefore made auto loans more accessible to subprime borrowers. Reuters reported that banks offered more car loans to subprime borrowers in the second quarter of this year than last year: from 34 percent in 2012, subprime auto loans from banks increased to 36 percent this year. With the decline of loan delinquencies, banks are now more confident that borrowers can settle their loan obligations.
Aside from lesser loan delinquencies, the other thing that pushed banks to reconsider lending to those with imperfect credit is competition. Banks, as well as credit unions, experienced a slight decline in their market share. According to Reuters, it is the captive finance companies of auto makers that have increased market share.
Dealers and Subprime Borrowers
Compared to banks, dealers were more likely to accommodate those with imperfect credit. However, even they are more accommodating now than in the past. Granting auto financing to someone with a credit score of less than 500 may have been unheard of in the last couple of years, but this scenario is not too unusual now. For many dealerships, having a good job—as well as a down payment—can be a good enough reason to get approved. While many dealers do welcome car buyers with poor credit, don’t expect all dealers to have the same credit requirements. Some may have tighter standards than others.
Getting an Auto Loan with Bad Credit
Now that you know there are more lenders that give auto loans despite poor credit, you must be excited to get started on loan shopping. Nonetheless, before you do proceed with loan applications, you should at least try to increase your credit score by a few points. A few points make a huge difference when it comes to interest rates. With your current score, you may get the approval you want but it may come with higher interest. If the purchase isn’t urgent, take some time to improve your credit. Saving more money for down payment will also be beneficial for you.
Lastly, remember to get quotes from different lenders and compare rates. Now that you have more options available, comparison shopping is more important than ever.