911 Auto Loans

Getting a Car Loan with Bad Credit
By Warren Clarke

You've just learned that your request for an auto loan with XYZ Bank has been denied. The loan officer explains that the decision has to do with your credit score. XYZ lends only to prime borrowers; your credit score, she continues, places you squarely in subprime territory.

Subprime: You're not sure exactly what it means, but it sounds like a condemnation that will forever brand you as being somehow deficient to lenders.

However, being deemed subprime doesn't necessarily mean that your borrowing days are over. It may still be possible for you to get that sought-after car loan (albeit from a different lender).

But first you need to understand the term that defines you. A subprime borrower is one with bad credit. Each lender has its own definition of what constitutes a subprime borrower, but typically, a credit score of less than 630 lands you in this less-than-desirable category.

There are plenty of credit grantors specializing in subprime lending who are eager and willing to loan money to those with bad credit. Naturally, though, there's a catch. The interest rates for subprime borrowers are frequently quite steep — significantly steeper than those paid by their more credit-worthy brethren.

•Check your credit report: Make sure that everything on your report is accurate; it could be that information has been entered in error, and that your credit history is a lot less blemished than you've been led to believe. If you do find information on your report that is inaccurate, you need to address it right away. Contact the credit bureaus in writing, listing your name and address and clearly detailing the nature of the error.

•Access your credit score: For a long time, credit scores were available only to prospective lenders, who used them to evaluate those seeking loans. That has changed; it's now possible for consumers to access this all-important number. Your score is available online from a credit bureau, for example, Equifax. If you've got bad credit, it's helpful to know it beforehand. Knowing your credit score will help give you a sense of exactly where you stand in your search for an auto loan.

•Remember that your credit score is malleable and ever-changing: When it comes to your credit history, the ball is entirely in your court. You can improve your bad credit by paying your bills on time, and not overextending yourself when it comes to loans and credit cards. With proper attention paid to the state of your credit, you could conceivably hoist yourself out of subprime territory in as few as two or three years. Going forward, check your credit score at least once annually. You may have to pay more than you'd like for the auto loan you're about to receive, but in a couple of years, if your credit score has improved, you'll probably be able to refinance your loan at a much lower rate.