Special Financing Auto Loans – Everything You Want to Know
In these economic times, it can be challenging to maintain an excellent credit rating. However, job losses, illnesses, bankruptcy, divorce, no credit history, and other financial issues crop up in the lives of most families sooner or later. Let’s learn about special financing auto loans!
It can be difficult to keep a good credit rating during these times of trouble, and it is easy to drop some credit score points when finances get stretched.
Definition of Special Finance
Special financing auto loans is a segment of the auto lending industry for borrowers with a limited or tainted credit history. Special financing in the auto finance industry is risk-based, which means that the terms of the loan are set so that the expected returns to the lender/investor are great enough to cover the risk of default by the borrower.
In terms of special financing auto loans, they typically carry a higher interest rate. That is compared to what is available to borrowers with a clean credit history.
Lenders for People With Low Credit Scores
If you are in the market for a car loan, you already know lower credit scores equal higher interest rates. You also know that means you will pay more to borrow money than someone with a higher credit score than you. However, did you know that there are ways to shop for the best car loan deal even if you have a low credit score?
People in your special financing auto loans situation still need reliable transportation to get to work or take your kids to school. This may cause you to think it is impossible to qualify for refinancing.
Let’s Look At The Answers To A Few Basic Questions You May Be Asking!
- When should I apply for a special financing auto loans?
- Where is the best place to get the best interest rate on an auto loan?
Here is the good news!
The good news is that you can find second-chance special financing auto loans or bad credit auto financing companies that are willing to provide special financing with lower interest rates for bad credit auto loans to people without excellent credit histories. Your credit score is not the only factor that car loan lenders look at when they set your interest rate.
As you research a pool of auto finance lenders for various types of car loans in the United States, you will see that the amount of interest they charge their borrowers varies from lender to lender even though they have the same credit score. Personal loans also fall into a diverse array of APR rates for a person with the same credit rating. When choosing to take out a personal loan, bad credit car loan or refinance a car loan, you should look at the facts.
How to Find a Low-Interest Car Loan
The lowest interest rates seem to be offered by vehicle manufacturers such as Ford Motor Credit, Toyota Motor Credit Corp., and Chrysler Capital just to name a few. They typically offer about 40% lower interest rates than the average lending rate, however, qualifying for these rates can be difficult if you have a bad credit history.
Local or Regional Banks and Credit Unions are different sources of auto loan lenders, but they have been known for having the highest lending rates to people with subprime credit and can be one of the most difficult places to qualify for a low-interest car loan. On average their rates can run about 10% higher than average.
The best option for someone with bad credit to get a lower interest car loan is to shop around the lending pool for special auto financing. Also, the best way to do that is to use an auto loan broker service. These services are known for finding you the best offers quickly, and this allows you to be selective as to which loan offer you choose.
Know Where to Shop and Save Money
For a typical Auto loan from the average lender, your credit score will play a significant role in determining how much money you stand to pay for your loan. If you have a reasonable credit score of about (620-659), you will spend approximately four and a half times more compared to someone with a credit score of (720 or higher).
With Special Financing auto loans, the lenders look closer at your work status and your ability to repay the loan. This is typical for bad credit lenders, and that is how they can be more competitive with their interest rate offers for each person applying. This means that compared to other lenders you may be able to save a couple of thousand dollars on a $20,000 car over a five-year loan term depending on the interest rate you qualify for.
How the Auto Industry Uses Special Finance
Some auto dealers may offer their own special financing auto loans options in-house, including special finance loans that they make part of their advertising and marketing campaigns. This can include running ads that claim the dealer will work with consumers regardless of credit history or if they even have any money to put down as a deposit. These special finance offers are a way to attract more customers to the dealership and drive up sales.
By showing consumers there are welcome to applying for financing regardless of their background, the potential for new buyers and sales increases. In the auto dealership industry, there can be a focus on clearing out as much inventory as possible. The use of special finance can be a way for dealers to increase their sales flow, particularly in times when consumers may face credit issues.
There may be concerns. As with forms of subprime lending in other industries such as real estate, of borrowers, not being fully aware of the higher costs. Costs associated with special finance, which they may not be able to afford for the term of the loan. This increases the need for transparency between the lender and the borrower. Doing so is to determine if such a transaction is truly feasible. Even with special finance, the customer might not be able to afford the vehicle they are interested in. Consumers may have to choose a car with a lower price tag.
Types of Special Financing for Cars
What is special financing? Auto loans are a form of secured debt. This means that the loan is secured by the vehicle that is purchased with the loan. Mortgages are another typical example of secured debt. In that case, the mortgage is guaranteed by the home it is used to buy.
We know sometimes it can be difficult for special financing auto loans for your dream car. This is where Car Loans Of America come to help.
Contrast that to unsecured debt like credit card balances. Credit bureaus and finance companies tend to look more favorably on secured debt. This is true when they calculate credit scores or decide whom to loan money to. This is partly because secured debt is already backed by a valuable asset. There are several reasons that secured debt is more favorable than unsecured debt, and these include:
- Credit bureaus and financing companies understand that most people cannot afford to pay cash for expensive and essential items like houses and cars.
- The items that secure the debt should have value while the loan is getting paid off.
- Once a secured loan gets paid off, the credit does not automatically renew. But, one paid loan can make it easier to secure another one.
- Interest rates for secured auto loans tend to be lower than interest rates on unsecured debt.
Bankruptcy Auto Loans
Bankruptcy does not have to be the end of the line. Fortunately, consumers who have filed bankruptcy no longer have to settle for traditional lenders. The timing of your car loan is just as important as the amount of money you’ll be paying each month.
If you plan to finance a car after your bankruptcy is discharged, you simply will need to present the paperwork to the lender. Assure them of your ability to repay the loan. Still going through bankruptcy proceedings and desperately need a vehicle and accompanying loan? The type of bankruptcy will have an impact on the kind of car loan you can get.
Child Support Auto Loans
Many borrowers who receive regular monthly child support payments report these payments as income on their loan applications to boost their chances of qualifying.
However, sub-prime lenders view this type of income differently than income earned through working.
The reason is these wages cannot be garnished if a default accrues. We can show you how to avoid this type of trap and the best way to handle your Child Support.
High-Risk Auto Loans
Learn about the High-Risk Auto Lenders that are right for you when you need special financing. Maybe you’ve experienced some difficult financial situations, and as a result, you have a poor credit score. People who have no credit history or poor credit, make it necessary for lenders to create special conditions. Lenders do this to help set up credit for those specific auto loan needs.
However, that does not mean that dealing with these companies is not a good idea. You might expect to find that interest rates will be somewhat higher than those offered to car buyers with prime credit. However, you might use special financing auto loans as a way to rebuild your credit so you can get low-interest rates next time you need to buy a car.
Tips for Buying a Car with Special Financing
Check your credit history
Look at your credit history reports, upon which credit scores are based, to check for errors that could limit your
access to credit, and dispute them if necessary.
Work out what you can afford
Use auto loan calculators to estimate how much you may be able to spend on a car. Take into account things like down payment and trade-in value, and what an affordable monthly payment might be. Down payment will be a requirement. Down payments can help a borrower by reducing the loan amount and loan costs.
Special Financing Car Loans: Choose the Right Lender
Look for a lender that accepts applications from consumers with bad credit histories and has expertise in providing them with special financing.
Apply with a co-applicant
If you’re having trouble getting approved, consider applying for a joint auto loan with a co-applicant.
Co-borrowers share equal rights to the vehicle and obligations on the loan, which is another way to reduce bad credit risk.
How Special Financing Auto Loans Rebuild Credit
When obtaining special financing car loans, each time you make a payment on time, this gets reported to major credit bureaus like Experian, TransUnion, and Equifax.
Over time, your good payment record has a positive impact on my credit score.
When it comes time to special financing car loans, all sorts of lenders will be eager to work with you because I have re-established good credit history.
You may even be able to refinance special financing car loans at a lower rate after making payments for several months.
What Kind of Cars Are Available
Not only can special financing car loans lenders help you rebuild your credit, but it can also help you get back on the road in style. Some people assume that they can only afford old, worn, and even unsafe cars without good credit.
This is not true. You might even find that you can get better rates if you purchase new or like-new used cars. Specifically, with special financing auto loans.
Getting A Better Quality Car
Lenders consider the financial situation and credit rating of borrowers. However, they also consider the type of vehicle that will end up securing the loan. If they are going to provide you money, they would rather have you purchase a more reliable and more valuable vehicle that is likely to outlive the term of the loan.
This gives them more assurance that special financing car loans will not put you in a bad situation. This is because your car will not run or need to be replaced before the loan term is over.
Conclusion – Special Financing Car Loans
Special finance auto loans should be shopped around by a borrower. Like any other product, auto financing is competitive. The best way a consumer can ensure that he or she is getting a competitive market price (rate) is to shop around.
Thinking of applying for second chance auto loans or are you wondering how do auto loans work? Consider us when applying! Read more about special financing from https://www.investopedia.com/terms/s/specialfinance.asp.