What is a Subprime Auto Loan?

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  • Written By: Amy Hunter
  • Edited By: Andrew Jones
  • Last Modified Date: 14 February 2020
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A subprime auto loan allows a car buyer with less than ideal credit to borrow money to finance their purchase. There are several reasons why someone may find it necessary to rely on a subprime auto loan. People who have a low credit score, generally less than 620, have recently declared bankruptcy, have a history of making late payments, or have a limited credit history may not qualify for a traditional prime rate auto loan.

A subprime auto loan is beneficial for people wishing to purchase a car. Without subprime loans, someone that had poor credit would only be able to purchase a car after they had saved the total amount needed, or managed to borrow the money from friends or relatives. The drawback of a subprime auto loan is that these loans have a higher interest rate than comparable loans made to someone who qualifies for a traditional, or prime, loan. This additional interest adds up quickly over the life of the loan, and, in the end, one will pay much more in total for the car. One potential way to lower this interest rate is by saving enough money to make a substantial down payment.


Another way to save money on a subprime auto loan is to go through a local bank or credit union rather than through the dealer where you plan to purchase your car. Auto dealers make money on loans, whether prime or subprime, so being approved for a loan through another lender is an easy way to lower the interest rate on the loan. A local lending institution, particularly one where you are currently doing business, is a good resource for a subprime auto loan.

If you are told that you only qualify for a subprime auto loan, but have a history of paying bills on time and an established credit history, contact the three credit reporting agencies, Trans Union, Experian, and Equifax, and request a copy of your credit report. Review your credit report and note any errors. If you believe that the credit report contains errors, contact the credit-reporting agency to begin the process of correcting your credit report, which will improve your credit score.



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