Watch out for subprime auto loans

Hit the brakes on subprime auto loans

“I wouldn’t say that the sky is falling, but I think it is fair to say that there has been an expansion in subprime lending overall. And that’s true of both new car purchases, used car purchases, and leasing.


—Alec Gutierrez, senior market analyst, Kelley Blue Book, on NPR Morning Edition, 7/24/17

When we hear the words subprime lending, many of us have flashbacks of the easy money that flowed until the dam broke during the financial crisis of 2007-08. These loans go to borrowers with poor credit (with scores below 640), and they’ve got a major catch: The interest rates can be triple what a person with good credit would pay. Say you find yourself on the motor mile and a dealer offers you one of these loans: Hit the brakes. If you can get by without new wheels for a bit, take this opportunity to rebuild your credit before applying for an auto loan with a lower rate—the difference in your monthly bills will be noticeable.

Of course, for lots of Americans, no car means no way to get to work, which can make a bad credit situation even worse. If you need a ride now, look for a cheaper used car, and don’t just take whatever loan the dealer slides across the desk. Arm yourself with information by comparison-shopping before you ever walk onto the lot. Start at to see the national average on car loan rates, and to find out where you can shop for loans in your area. Make sure to call your local bank or credit union to see what they can offer. One upside of taking on a subprime auto loan? It can help you raise your credit score—but only if you make every single payment on time. Because you could be driving your rating up—or into a ditch.


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