If you have been applying for a car loan and found you’ve been turned away from banks and lenders because of bad credit, don’t feel discouraged! It turns out you may simply have to apply for what’s known as a “sub-prime car loan” or bad credit loan instead.
Lots of people accumulate bad credit for a variety of reasons. It may be that they have defaulted on a loan, did not pay back bills on time or declared bankruptcy. In many cases, you should check your credit history before applying for loans to make sure it is free of errors. Read our blog post on checking your credit history for more information.
In some cases, if you have demonstrated the ability to pay back a car loan on time and without default, the traditional or “prime” lenders may deem you a low risk and approve a loan at the usual market rates.
What that means for you
If lenders and car loan brokers have deemed you to have bad credit or as a high risk, you may still have access to car finance. Unfortunately, these interest rates are noticeably higher than the usual market rates on offer to those who are in a prime borrowing position. People with bad credit may think they don’t have options. They do, although these opportunities may be limited in comparison to people with better credit.Interest rates on offer.
Sub-prime interest rates are generally more than 10% per annum when your credit history is taken into consideration. These higher rates may only be offered to applicants who have emerged from bankruptcy or are subject to a Part IX Debt Agreement.
Lenders will also assess your risk based on your current employment status and residential history.
Those who do not fall under these categories but still have bad credit may find themselves in a slightly more favourable borrowing position.
Benefits of sub-prime car finance for people with bad credit
It doesn't seem like there is an upside to paying back a car loan with such high interest rates. However, these sub-prime car loans are actually a great way to:
• Get a second chance at car finance
• Working toward clearing your credit
• Establish yourself with good credit in the future by borrowing responsibly.
This way, you can use a bad credit car loan to improve your credit and financial position despite paying back at a higher interest rate than prime borrowers. If you pay your loan back on time and in full, there is a good chance you may not have to apply for a bad credit car loan and a sub-prime interest rate again.
Savvy’s team of experienced consultants can find the best bad credit car loan interest rate from one of our reputable lenders. We can tailor a bad credit car loan tailored to your circumstances and needs. Contact us today for an obligation free consultation.