Get the best auto credit rate despite a low credit score
In conversations with experts in the lending industry, CR has discovered that there are a number of ways to save money, even if your credit score is not optimal.
Know your credit score. Experian recommends checking your credit score at least once a year. This way, you will know where you stand in order to manage the expectations regarding loan eligibility and know what you need to do to increase your score. You should also look for errors in your credit report, which can affect your score, Bell says.
“Fortunately, there is no shortage of sites you can visit online to get a free credit score,” says Nana-Sinkam. “All the major credit bureaus offer a free credit report every year. “
If you have time, improve your score. A credit score can be improved in several ways, primarily by paying bills on time. Always pay credit card and other bills when they are due, even if it is only the minimum payment. This is good advice for any loan: the more you pay up front, the less you will pay in the long run.
Bring a larger deposit. “Having a larger down payment reduces the amount of loan you need, and a smaller loan means less interest,” says Amy Wang, associate director of Credit Karma Auto. “A down payment can take the form of cash, a redemption vehicle, or a combination of the two.”
Get prequalified. Just like knowing your credit score, being pre-qualified for a loan with your bank helps manage expectations of what is possible.
Talk to your financial institution and see what’s available. Nana-Sinkam says that before you get prequalified, it’s a good idea to look at your credit report to see if there are any questionable items. Every little bit counts, and a few fixes can get you a better rate. Getting approved for a loan before buying a car gives you yet another bargaining chip.
“Have a rate that you can present to the dealership to see if they can beat it,” DeLorenzo explains. “Dealers can access programs that can get a better rate for subprime borrowers.”
See what the dealership’s manufacturer offers. If you’re in the market for a new vehicle, manufacturers like Chrysler, Hyundai and Kia often have programs for subprime borrowers, DeLorenzo says. You have to search their websites to see what’s out there, and keep in mind that this type of deal will be found on cheaper cars.
“Most of the subprime loans you’ll see are for entry-level and economy cars, the lower end of the product line,” he says. “I don’t think a manufacturer wants to turn a risky buyer into a high-margin vehicle like a luxury car or a pickup truck.”
Consider buying a used vehicle. In general, used cars cost less and the value of a used car is more likely to remain stable longer than a new car, which will depreciate quickly. This means that used car transactions are less risky for the lender and that a subprime borrower is more likely to be approved for a loan.
“In our experience, most of the risky buyers buy in the used car market because they are looking for lower priced vehicles,” says Wang.
Report a suspected discrimination. Racial discrimination in auto credit is not new. Ally Financial, which provides loans to several automakers, settled an $ 80 million discrimination lawsuit just a few years ago.
An academic report released in December 2019 found that black and Hispanic borrowers were 1.5% less likely to be approved for a loan and pay 0.7% higher interest rates regardless of their age. credit. The study found that although bank loans – which are regulated by the federal government – were much less likely to be discriminatory, more than 80,000 black and Hispanic borrowers were denied loans for which they would have been approved. ‘they had been white.
Loans offered by dealers are called indirect loans because the dealer arranges the financing through a third party company. But the concessionaire does not have to share with the borrower the loan offers that come from the lender. This is how they mark up for-profit loans and, as shown in last year’s study, how dealers were able to charge minority borrowers more. A federal rule enacted in 2013 brought auto loans under the direction of the Consumer Financial Protection Bureau (CFPB) and reduced discriminatory auto loans by 60%. But the rule was overturned by Congress several months before the 2018 midterm elections.
“Unlike mortgage lenders, who report every claim through the Home Mortgage Disclosure Act, auto lenders do not routinely report claim data or loan level data, making it difficult for regulators to monitor lenders for claims. discriminatory practices, ”says Erik Mayer, one of the study’s authors. “We find the strongest evidence of discrimination in the Deep South, the Ohio River Valley and parts of the Southwest. Our estimates of discrimination in auto loans correlate strongly with state-level measures of the prevalence of racial bias. “
If you suspect a discriminatory loan, Mayer suggests filing a complaint with the CFPB or the Federal Trade Commission.