Get a Second Chance Auto Loan
Usually, when a person needs to buy a car, they need to secure an auto loan to help pay for it. However, not everyone has good credit, which can pose challenges. Fortunately, there is something known as second chance auto loans to help individuals with bad credit be able to buy the car they need.
What is a Second Chance Auto Loan?
A second chance auto loan is also known as a subprime loan. These have been specifically designed to help people with making payments toward a vehicle so they can get back to driving and gradually rebuild their credit. Because they are meant for people with bad or poor credit, however, they come with high-interest rates. This is due to lower credit scores, making them riskier candidates for paying back the loans.
In some cases, lenders who offer second chance auto loans may require special tracking software to be installed into a vehicle just in case the person defaults on making payments. Regardless, these loans are a good option for many who would otherwise not qualify for a car loan. It’s important to know what to expect with second chance auto loans.
How You Can Get a Second Chance Auto Loan
Once you have decided to get a second chance loan, it’s important to shop around before settling on one particular lender or loan. You should study the auto loan terms, interest rates, and other relevant information on each loan you might consider.
One thing many borrowers don’t realize when they seek second chance auto loans is that there are different meanings for the term “subprime” from lenders. Each lender may have different criteria for qualifying and different levels of credit scores. Subprime generally tends to fall under the 580 to 619 range. However, if your credit is lower than 580, you would be considered in the deep subprime level and might have fewer options of lenders.
The best way to start is to first see if you can qualify for a loan through your local bank or credit union. If not, then you can start looking into second-chance auto loans. Some dealerships work directly with subprime lenders who offer these loans to people with bad credit. Other dealerships offer in-house financing, another option for second chance auto loans. However, the latter isn’t designed to help you improve your credit if that’s a priority for you.
Things to Be Aware of with Second Chance Auto Loans
Although second chance auto loans are often the best option for getting a loan to buy a car when you have bad credit, there are some downsides. You should be aware of the following:
- These loans have higher interest rates than those available for people with good credit. This is due to being a bigger risk.
- You are often required to put a downpayment toward the loan due to being a higher risk.
- It’s fair to expect extra fees to be added when you seek a second chance auto loan.
- According to Lantern by SoFi, “If you need a car and your credit is far from perfect, a second chance auto loan might be your best bet.”
- Always research a few lenders before you settle on a loan.