What are Subprime Auto Loans?
- April 11, 2021
- Uncategorized
- Posted by mangoboss
- 1 Comment
Subprime auto loans are a fancy term to describe high lending rates.
They are higher than prime lending rates which means you have to pay more interest than a regular or “Prime lending rate”. These exist because in case you don’t have a decent credit score, banks and other lending institutions simply don’t trust you enough to offer you money and feel confident that they will get paid in full.
It is pretty clear to see the problem. Life can get messy and getting hit with unexpected expenses or debt can seriously affect your credit score leaving you with a tarnished credit score that really stacks against you.
We will take a look at: types of credit, what affects your credit score, and how you can help raise your credit score.
Reasons for Low Credit Score
Credit score can be impacted by a number of factors in Canada. It is important to understand that there are different types of debt: revolving and installment credit. Subprime auto loans keep an eye on how well these types of debt are managed.
Revolving Credit: is a running tab of debt that you pay off as you go. This lets people spend and pay off little by little, letting them have more financial freedom and pay for expenses as they come. Most common forms of these are credit card bills.
Installment Credit: These are more bundled forms of credit such as: mortgages, auto financing, student loans, etc. They often have a term where the primary (amount you are borrowing) plus interest (the % rate which is charged as a fee for borrowing) is applied. Unlike revolving, the lump sum is agreed upon and paid in full at its due date.
What Affects your Credit Score?
In Canada, there are few factors that affect your credit score and contribute to the score you get.
Factors for calculating credit score in Canada:
- Payment History
- Credit Utilization
- Length of Credit History
- New Credit
- Types of Credit in Use
Payment History:
How well you are paying on time and in full can be looked either favorably or poorly. So making sure there isn’t a large streak of missed payments month after month is important.
Credit Utilization:
Maxing out your credit all the time also looks bad, this is because it seems risky to max out cards. Ideally borrows should maintain a 50-60% spend rate, this shows you don’t overspend and are still able to pay off your debt.
Length of Credit History:
History talks, that logic applies to subprime auto loans as well. The more history you have of paying off debt and spending that sweet spot amount really helps show how reliable of a borrow you are.
New Credit:
Applying for multiple lines of credit isn’t a great look either. If you acquire more debt than assets (debt to asset ratio) it can look risky. It means you borrow more than you owe. That’s why having multiple lines of credit are more opportunities to default and not be able to pay off the debt incurred.
Types of Credit in Use:
Having a diverse portfolio of debt and managing them well can be favorable for your credit score. It shows that you can manage different types of debt, pay them off well or poorly, and ultimately shows you can handle the stresses of multiple forms of debt and still be able to either pay them off well or poorly.
So how do these factors impact Subprime auto loans?
Subprime auto loans use these factors and more to calculate your “risk level”. If the credit score is bad, then the rate they offer you will reflect that.
The great thing about subprime auto loans is that they will be able to get you the car you want. It will be more expensive but if you are able to have a healthy debt consolidation plan and raise your credit score then the rate will go down over time.
That’s why it’s so important to find subprime auto loans that you can trust and are looking out for your financial health. We at Drive Mango look at the bigger picture and understand that it can be tricky and necessary to have multiple lines of credit or other factors that reflect your credit score. It doesn’t mean you can’t manage your finances, it just means that your lifestyle needs are different.
Contact one of our sales Representatives and find out how we can help raise credit scores, find the vehicle you need, and focus on finding that sweet spot that works for your lifestyle.
How Drive Mango can Help
If you are new to Canada and need a car, here as an international student or buying a new car as a foreigner, Drive Mango is there every step of the way. We make it easy for newcomers to find the right car and purchase with confidence.
Our Simple Process is simple:
- Fill out our Survey
- Get Approved
- Test Drive
- Get a new Vehicle
We understand the stresses of moving to Canada and we at Drive Mango want to make finding your next car as easy as possible. Let us help.
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