The Pros and Cons of a Subprime Auto Loan

Cars are expensive investments, and very few people can afford to pay for even a used model in one big cash payment. That’s why auto loans exist: to help break the price of a car into manageable monthly payments spread out over time. As your used car dealer, we here at Jim Ellis Buick GMC of Atlanta have a finance department filled with experts who can help you get a loan that works for your budget.

If you have good credit, getting an auto loan is a simple process. If not, things can get trickier. Luckily, our team is on hand to help you get behind the wheel of the vehicle you need to get around, no matter how difficult it may be to match you with a loan that fits your financial situation. In some instances, that may mean a subprime loan. Getting a loan like this can be a little scary, and we realize you’ll want to completely understand what you’re signing up for before you commit. So today, let’s look at some of the pros and cons of getting a subprime auto loan to help you decide whether or not it’s right for you.

Con: Can Be Tough to Find

When you have a low enough credit score or no credit at all, there are some organizations, like certain dealerships and banks, that will refuse to work with you at all. If you have no financing options at all, it can be basically impossible to get a car, truck, or SUV. And if you need a vehicle to get to your job or drive your kids to school, it can feel hopeless to come across dead end after dead end.

Pro: An Accessible Option

If you have a low enough credit score, then your options for financing may well be either a subprime loan or no loan at all. If you need a loan in order to get the vehicle you need, then this might be your only port in a storm. While these loans may not be as nice as agreements available to people with high credit scores, they can be exceptionally preferable to getting no loan at all.

Con: Higher Interest Rates

While our team will absolutely work hard to get you the best rate possible, no matter your credit score, we still have to work within the larger system, which rewards high credit scores with low interest rates. Unfortunately, this does mean that you’ll probably have to pay more in interest for your subprime loan. You can offset this extra cost of financing by opting for a used model that’s a particularly good value and will serve you well for a while yet to come. Fortunately, those are exactly the kinds of used cars, trucks, vans, and SUVs you’ll find when you shop with us.

Pro: Can Help Build Your Credit Score

Long-term, the best way to get loans with low interest rates is to build up your credit score. This is a process that takes a long time and can feel daunting for many. If you have a low credit score, you may be tempted to avoid taking on new credit altogether. Unfortunately, the only way to build your credit score back up is to do exactly that: take on new credit.

So, while taking on a loan with a low credit score might feel risky, it can actually be helpful in the long term if you play it smart. As long as you’re able to afford the monthly payments consistently and on time, then the loan can help you improve your credit score. Then, the next time you want to get a vehicle (or move to a new apartment or even buy a house), you’ll have a better credit score to work with and can get an even better deal on financing. Play it right over the years, and you can start a cycle that keeps your credit score climbing higher and higher so you can save money on interest rates down the line.

Con: May Require a Bigger Down Payment

When a borrower has a high credit score, a lender feels more comfortable trusting that they’ll pay back their loan. With a low credit score, you have less trust on your side when dealing with financial institutions like the ones our finance department partners with. Because of that, many subprime loan agreements require higher down payments than the typical auto loan.

This can definitely be a hurdle for some drivers, but with a little planning, it doesn’t have to be an insurmountable one. As soon as you realize that you want to turn in your current vehicle for a new one in the not-too-distant future, start saving money as much as you can. Putting aside a little extra cash each paycheck can help you build up enough for a solid down payment and help you build good financial habits, which will come in handy for paying off the monthly payments on time and in full going forward. You should also do what you can to clean up your trade-in vehicle and make it ready for evaluation. The value of your trade-in can be used to help pay for your next model, so the more you can inflate its value, the better.

Pro: Avoid the Shady World of Individual Sales

If you’re still wary of subprime loans, we completely understand. However, you should be aware that the alternatives aren’t always better. Many people absolutely need to have a vehicle in order to live their lives, so they’re going to get one, no matter their credit score, one way or another. If you don’t want to get a subprime loan, you might look for cars that are so cheap you can afford to pay for them all at once, which probably means buying from an individual rather than an established dealership.

The problem is that buying from an individual can be very risky. The person you’re buying from might be hiding major problems that will eat up your savings quickly because you’ll have to spend the money on expensive repairs. Meeting up with strangers in order to buy the car can even be physically dangerous since you don’t really know what you’ll be walking into. While there are definitely honest people out there looking to sell their cars for reasonable prices, it’s impossible to pick those people out among the sea of scammers offering deals that are too good to be true.

Here at Jim Ellis Buick GMC of Atlanta, we stand by every used vehicle on our lot, and you can rest assured that each one meets our high standards. While some might be older or have plenty of miles on them, none of them are lemons that are going to leave you with buyer’s remorse. You can research our inventory online, look at vehicle history reports, and come to inspect and test drive the models that catch your eye in the secure environment of our dealership instead of some restaurant parking lot late at night. We’ll get you a good deal without sacrificing quality.

Get Started Today!

We’ve looked at some of the general pros and cons of subprime loans today, but when you dig into the details, you’ll find that many factors can affect financing. If you have a trade-in in great condition, a family member willing to cosign, or a nest egg set aside to help boost your down payment, some of the cons of these loans may shrink or vanish, no matter how low your credit score is. The best way to figure out your situation is to work with our finance team and review loan offers. You can get started today by giving us a call or filling out the user-friendly form here on our website. We can’t wait to help you get a great deal on your next used car!