Financing Your Car Purchase: Prime vs. Non-Prime Loans
Financing your car purchase can be a stressful experience. Whether you’re applying for a car loan, mortgage, or a credit card, it can feel like you don’t have control of anything. Your credit card score and credit history will determine what offer you’ll receive when you apply for car financing.
If you have a bad credit score with a history of late payments and debt, you may receive an offer with a higher interest rate and a smaller loan. These offers are referred to as Non-prime loans.
Prime vs. Non-Prime Loans When Financing Your Car Purchase
If you have a good, very good, or excellent credit score along with good credit history, you’ll receive a better car loan with fewer interest rates from lenders. These are known as prime loans or rates. If your credit score is below 670, and you have debt or other credit issues, you will likely receive higher rater rates and fewer loans. These are known as non-prime loans or rates.
Before financing your car purchase, the first thing you need to do is get your credit card report to get an idea of what to expect when you apply for car financing. First-time car buyers often fall victim to deceptive marketing and sales tactics and end up paying a higher price just because they didn’t check their credit score. You can also window shop at multiple dealerships if you’re looking for an auto loan to get the best deal possible.
Impact on Car Finance
Many lenders specialize in non-prime loans. According to Global News, about 25 percent of all car loans are non-prime, and these loans can have interest rates of 10% or higher. They may also require a higher down payment on the vehicle. In contrast, prime loans have much more favorable terms, with interest rates sometimes as low as 0% and no down payment.
Impact on Credit Cards
Non-prime credit card companies extend credit to those with bad credit history, so it’s important to review offers carefully in terms of loan and interest rates. However, compared to subprime loans, non-prime loans are much less risky than their predecessors due to higher down payment requirements, ability to repay, and no pre-payment penalties.
With changes in policies, non-prime loans are now safer for lenders and borrowers. If you decide to get a non-prime auto loan, read the agreement very carefully before signing it, so you know what interest rates you’re getting. Many buys go into the market unprepared without even knowing their rights when getting a loan.
Having a bad credit score or history isn’t the end of the world, and you can still get your dream car. While getting a prime loan has its perks, non-prime loans get the job done as well. However, your job is to do your research and get the right information before making any decision.
To learn more about financing your car purchase and find the perfect auto lending option for every situation, please visit MyAutoLenders today.