There are many national, regional and local banks, credit unions and finance companies helping millions of people with bad credit and no credit buy cars, trucks and SUVs every day. There are many reasons for this.
First, after the Great Recession when many people endured foreclosures, short sales and repossessions, the average individual credit score in the United States dropped. The FDIC and NCUA consider prime credit to start with scores of 720 and 680 respectively, while the average credit score for those people financing a used vehicle is only 659. , That means the average person having to finance a used vehicle by definition has nonprime credit. With over 33 million used cars sold every year in the United States, and with banks, credit unions and finance companies in the business of issuing loans, they must make subprime credit auto loans in order to conduct business. Accordingly, they have become less stringent in their lending requirements. Certainly, a bad credit auto loan may have a higher interest rate than a car loan based on great credit, but both dealerships and companies making these loans have had to become more competitive, keeping rates lower.
Next, realize like a home loan, your loan is secured, your car is collateral. Banks and finance companies look at this as much safer than an unsecured credit card. Additionally these institutions know, that just because you may have a lower credit score it doesn’t mean you won’t pay your debts. They know if recently filed a bankruptcy, or just had a discharged bankruptcy, that you are being given a second chance, and even more likely to pay your bills. Since repaying a car loan is a great way to rebuild your credit and banks assume that will be your goal, some finance companies have very competitive terms for these situations.
Finally, the auto industry is a very competitive by nature. When it comes to new cars, trucks and SUVs manufacturers don’t care who a dealer sells cars to as long as they sell cars, it is often more important to a dealer to sell more cars than it is of how much money is made on each sale. Often the incentives given to a dealer are based on how many cars are sold. The more cars sold, the larger the incentives become. With that being the case, dealers can sometimes sell the car at cost, or even below cost, which makes financing the car much easier.