shopping for your car
Finance Companies and Subprime Loans
Finance companies offer subprime loans for people with poor credit. These loans often have much higher interest rates than prime loans. If your credit is such that you can only qualify for a subprime loan, what's the best thing to do?
- Recognize this is the only way you can afford to own a car.
- Strive to improve your credit score before applying for a loan.
- Consider leasing a car instead of owning one.
"B" is correct. You will still need good credit to lease a car, and a subprime loan may set you back thousands more than a prime loan. Say you borrow $15,000 and finance it with a 60-month loan. If the interest rate is 15%, you'll pay $356.85 per month and spend $6,410.94 for interest. With a 5% interest rate, the monthly payment is $283.07 and will save you $4,426.50 in interest.