In this credit-driven world where credit scores are king, being turned down by traditional car financing is not an extraordinary situation to be in. Being driven out of standard car loans, your next best bet would be nonprime car loans.
These loans can provide you and other borrowers in a similar credit situation with access to meaningful car financing which grew during the
second quarter of 2017. Find out what it takes to qualify for nonprime car loans.
Find lenders here, too.
The Face of Nonprime Car Loans
No matter the year, a car
remains a necessity as it transports you to work and thus increases your chances to improve your economic circumstances. Nevertheless, not everyone is creditworthy for their first-ever car loan.
Some may have just bounced back from a financial crisis, have limited credit histories due to fewer credit accounts, or have yet to start building one.
This segment of borrowers whose scores are not at the bottom but not that high either has it harder to qualify for standard car loans.
While some lenders stick to lending to prime borrowers as they know best, other lenders want to tap the nonprime market, giving birth to nonprime loans.
The attributes of nonprime car loans can vary depending on the lenders making them.
One lender’s non-prime is another lender’s prime. While Bank A can require scores above 620 to qualify for its nonprime program, Bank B can afford to go down in the high 500s.
As of this time, there are no uniform guidelines as to what constitutes nonprime scores. It’s best to consult a lender about their own
scoring requirements. You might have to obtain a copy of your own credit report and know your credit score first to do that.
Let us help you find a lender.
Another factor that puts borrowers in the nonprime category is their income situation. Lenders are required to vet and verify income information but nonprime lenders may be willing to qualify those with a nontraditional income set-up.
First are the self-employed who usually find it hard to show their true income because of tax write-offs. These borrowers tend to have assets and reserves that make up for their lack of traditional income documents.
There are also those who have just settled in their jobs a few months ago. Lenders usually require steady work or a solid employment history. You can ask your lender about how you can meet their income/employment requirements.
Interest rates on nonprime car loans depend largely on the credit score of the borrower. Compared to prime rates, they tend to be higher but that is expected.
Still, there are ways you can possibly lower your rate. You can come up with a
larger down payment, apply for a shorter-term loan, and find a co-signer with a better credit score.
The Rise of Nonprime Car Loans
As there will always be a gap between prime borrowers and those aspiring to be one, an opportunity to finance a car presented by nonprime car loans can’t be underestimated.
Not to undermine credit issues in loans, lenders employ a risk assessment that considers all risk factors, i.e. down payment, loan term, debt-to-income ratio, and assets.
If your credit ultimately stops you from getting a loan, you can always work toward improving it and wait out until your situation has become better.
Click to See the Latest Mortgage Rates»
Get Your Free Mortgage Loan Quote Today