Factors Affecting The Subprime Buyer
Whether you’re eyeing a new vehicle, there are several factors that will influence the loan rates available to you. Credit score, credit history, and annual income are just a few elements that lenders scrutinize before determining the interest rates and payment plans for potential car buyers. If you’re in the midst of your car-buying journey, you’ve likely come across the terms ‘subprime‘ and ‘prime.’ These terms pertain to an individual’s financial standing and come with specific terms that lenders will establish after reviewing your comprehensive credit report.
The initial step in your car-buying journey should always involve obtaining a copy of your credit report, giving you a strategic advantage. You should have a thorough understanding of your credit report prior to visiting a dealership equips you with valuable insights, allowing you to prepare for potential approval outcomes. Your credit score, derived from your credit history, is a numerical representation of your creditworthiness. Financial institutions rely on this number, which falls within the 300 to 900 range, to assess the creditworthiness of a prospective loan applicant.
Credit Scores
Higher credit score increases your chances of being approved for prime rates, which offer favorable interest rates for those with good credit. Typically, prime customers have credit scores of 670 or higher, while customers with credit scores lower than 670 are generally classified as subprime. The exact credit score threshold that distinguishes prime from subprime may vary among lenders, underscoring the importance of shopping around for rates before making a commitment.
Credit scores fall within the 300 to 900 range, and individuals with lower credit scores may find it challenging to secure prime rates, characterized by lower interest rates and monthly payments. However, securing auto financing with a lower credit score can serve as a valuable tool for building credit. Consistently making on-time loan payments can contribute to an improved credit score.
For the subprime buyer, demonstrating responsible borrowing habits and the ability to make payments can enhance the likelihood of future approval for prime rates. If you’re currently in the process of purchasing a vehicle, understanding the distinction between subprime and prime lending will empower you when consulting with lenders, enabling you to secure the most favorable rates possible, irrespective of your credit score.
Prime Borrower Description
Prime borrowers, car buyers with credit scores exceeding 670, are considered more appealing to lenders due to their track record of responsible debt management, posing lower risks to lenders. Reduced risk for lenders translates to more favorable loan terms. Individuals with excellent credit scores might even be offered terms featuring interest rates as low as zero percent and the option of no down payment.
Subprime Borrower Description
Subprime loans generally come with less favorable interest rates and terms compared to prime loans, but this doesn’t mean they are unaffordable for customers with less-than-perfect credit.
