What to Expect due to Past Credit Problems
In today’s economy many people are struggling to pay bills and often get behind in making payments. Dealers often hear: “My credit score was great until …” There are numerous reasons why so many consumers have a poor credit score, but the most important is not paying the finance company as agreed or not paying at all and having a repossession or bankruptcy.
There are many reasons for not paying on time. Job loss, health issues, and divorce are among the top reasons, but keep in mind while people run finance companies, it’s math that dictates decisions. If you’ve paid others late or failed to pay back a loan, it’s likely you may do so again. At least, it’s more likely than if you’ve never or rarely made a late payment.
Some large financial institutions that are subsidiaries of automotive manufacturers or banks, simply won’t offer credit to people with scores below 700. As your score approaches the 600 range, only “subprime” finance companies will take on the additional risk. While most auto manufacturers have subprime finance companies, they do operate differently.
Here’s what to expect:
- Greater documentation requirements
- Possibility of a co-signer
- Higher fees
- Higher down payment requirements
- Higher interest rates
- Possibility of a vehicle location device
Documentation requirements may include such things as a phone bill or electric bill for several reasons. The first is to help determine your monthly cost of living. Current bills will also show if you’ve been paying those bills on time.
The higher fees and interest rates help off-set the subprime lenders’ greater losses as a result of taking on greater risks. The GPS or starter-interrupt device helps the finance company locate or disable the vehicle in the event of late payment or default and must repossess the vehicle.
Despite the higher fees and interest rates, the subprime finance contract does have multiple benefits to the consumer. First, and foremost, it gives the consumer the ability to purchase a vehicle, get to work, take their kids to school and take care of personal business without relying on public transportation. It also gives consumers the ability to improve their credit score. If they succeed at making timely payments at the agreed upon terms, they may improve their score to the point where they will qualify for a prime finance contract.
Auto dealers work with multiple finance sources so whether you have great credit or have had some past credit the Business Manager at the dealership will work to get you the lowest possible interest rate on your vehicle loan. If you have concerns in this area, just call or visit our dealership for more information. Call us at (800) 555-1212.