Buying a new car is tough if your credit score is poor by traditional standards, but there are ways around this that are less risky than you think.
Much attention has fallen on auto loan providers recently. Six years after the financial crisis subprime loans are reemerging in the auto market, and this development has some regulators worried, according to New York Magazine. For houses and credit cards, lenders still seem reluctant to ease their standards too easily. However, for auto loans, things are different. These days consumers are loading up on debt, pushed by financiers to purchase things they cannot afford, the publication explained.
After lending to subpar borrowers fell sharply following the recession, it has bounced back in the auto market, which has led to an increase in defaults, the publication explained. And for the most part, the quality of the loans being made isn't great.
Bad credit score? No credit score? Buying a new car is still possible
Borrowers who don't believe their FICO credit score is sufficient may turn to a used car dealer for a vehicle, where they can purchase a car with a "pay-here, buy-here deal." While this is another option, these agreements aren't always the best - interest rates often approach the state maximum, making these deals exorbitantly expensive over time.
Edmunds, a car-buying advice website, tested the affordability of buying a used car outright, and found that this too can be exceedingly expensive. Over the 13 months following the initial purchase of a car, the test team ended up spending the same on maintenance and repairs as they spent on the car during the initial purchase. If you don't mind the money you invest in a used car doubling over the course of a year, then a used car might work, but for most of us, this sort of wasteful spending won't cut it.
And as for taking a chance and just trying to take out a loan? Well if your credit isn't great, that will be pretty tough as well. While the market for auto loans has grown immensely, banks aren't making it any easier to get them, MarketWatch noted. In response to a Federal Reserve survey, most banks stated that they did not intend to ease lending standards for auto loans within the coming year, and that they had not done so in the past 12 months either. Subprime lending in the auto market has caught regulators' collective eye and they will likely stay focused on the perceived issue for some time.
So if taking out a loan that won't be a detriment due to high interest isn't exactly plausible, and you're not into spending too much on repairs for a used car, you're best option is to raise your credit score. How do you do this without taking out a whole new loan? Well, credit reports and the FICO credit score usually only take into account money that you've borrowed. But if you haven't borrowed much, or any, cash at all in the past, then your credit score probably isn't ideal, no matter how responsible you are.
In this case, the best option may be to utilize an alternative credit score such as PRBC. This way you can obtain a loan good enough to not saddle you with a burdensome interest rate, and you can avoid investing too much in a used car that demands repairs. Using PRBC, you can utilize positive payment data such as rent, utilities, cell phone bills and more to show how financially responsible you are on a monthly basis and earn a better credit score.
If you need a better credit score in order to purchase a brand new car, try PRBC in order to prove your creditworthiness.