5 steps to trim a subprime car loan rate

Why are you a credit risk?

Griffin says a consumer considered for a subprime car loan typically has one or more of the following:

  • Substantial problems with debt management.
  • Accounts in collection.
  • Home or car repossession.
  • Bankruptcy.

Review your credit report to determine if any negative items are fixable in the short term.

Are there any small balances reported by collection agencies that you might be able to pay off or delinquent credit card payments that you can bring up to date?

Let the lender see that you have made a serious effort. "The biggest thing to do (to enhance your approval chances) is to improve your overall credit profile," Bowman says.

Make a generous down payment

Someone strapped for cash with damaged credit might find it nearly impossible to make a large down payment, but doing so will significantly improve the chances of approval of a car loan and perhaps move you from a subprime car loan rate to a better loan rate. Whether it's with cash or equity in a trade-in, a down payment of 20 percent or more will improve your profile with a lender.

"The higher the down payment, the better the chance of approval," Bowman says. "Cash is looked at more favorably than a trade-down." A trade-down is when you trade in a car and put some equity value toward a new car loan down payment.

Gather all of your documentation

According to Bowman, a lender is more likely to look favorably upon an applicant who has all of the required documentation in order. Doing so won't balance out a bankruptcy or miraculously elevate you from subprime car loan status, but making a lender's job easier places the applicant in a better light. It also saves time during the application process. He says that the documents most likely to be required are:

  • A current driver's license.
  • A current utility bill.
  • A recent pay stub.

Bowman cautions against making any statements to the lender that aren't supported by the documents, such as exaggerating your income. Be honest and truthful.

"Most subprime lenders do a more intense due diligence," he says. "Be upfront. Know that everything is going to be verified."

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