Subprime Auto Loans: Rates, Terms, and More

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Subprime auto loans don't have to be scary, and the team here at Granite Hyundai of Somersworth aims to guide you through the car loan process. Some people do not have high credit scores, even falling into the "Fair" or "Poor" categories. When you don't have a high enough score for a standard auto loan, a subprime auto loan is the one you will have to go with. In today's post, we will break down subprime auto loans, their terms, what borrowers can expect, and other requirements. Stick around, and let's get into it below!

What Is a Subprime Auto Loan?

A subprime auto loan is a car loan offered to individuals with lower credit scores, typically those with a credit score below 620. These automotive loans may come with higher fees and longer terms and may require a cosigner for approval. You can consider subprime auto loans as an option if you have a limited credit history or a credit score that has been negatively impacted.

Who Are Subprime Borrowers?

Subprime borrowers will be people who do not have a long or positive history with their credit. For example, a first-time car buyer who is just out of high school or college and wants a car will usually need a subprime auto loan rather than a traditional auto loan becabanuse they lack a credit history. The same applies to a more mature car shopper with a lower credit score under 620.

Credit scores that may apply: Deep subprime (credit scores below 580); Subprime (credit scores of 580-619).

How Subprime Auto Loans Work

Subprime auto loans are alternatives to traditional financing and typically come with higher interest rates, additional fees, higher monthly payments, and a 10%-20% down payment, among other terms. You will apply for a subprime auto loan if you cannot get your score to prime or near-prime levels. These loans also often require a cosigner, additional documentation, and proof of stable income and employment.

Subprime Auto Loan Rates

Getting into the subprime auto loan rates in 2025, we can look at recent reports from this year. The average subprime auto loan rate in the United States ranges from 12% to 20% or higher, while a high-credit shopper might be able to secure an APR as low as 6% or 7%.
The higher your credit, the lower your auto loan rates.

Terms and Conditions for Subprime Auto Loans

The terms and conditions for subprime auto loans will vary based on your credit history, the vehicle price, your current employment and income outlook, and the duration and down payment you agree to.

Loan Duration

When signing a subprime auto loan, duration plays a key factor in the amount of money you pay monthly. The average subprime auto loan term is around 60-72 months for new cars, but terms as long as 84 months are becoming more common.

Down Payment Requirements

As a subprime applicant, your auto loan will require a larger down payment than someone with higher credit or a more positive/credit history. As we mentioned earlier, subprime auto loans typically require a down payment of 10% to 20% of the vehicle's Manufacturer's Suggested Retail Price (MSRP) to secure financing.

Tip: The larger your down payment, the less money you will have to pay each month and over your auto loan term.

Subprime Leasing vs. Buying

If you are between leasing and buying with a subprime auto loan, there are pros and cons to consider. We break these down below.

Pros and Cons of Leasing

Pros:

• Lower monthly payments
• Reduced initial costs and down payments
• Opportunity to improve your credit
• You get a new car more often

Cons:

• Difficult to qualify depending on credit
• Higher interest rates
• No ownership of the vehicle
• Restrictions on your mileage

Pros and Cons of Buying

Pros:

• Building equity and ownership of a car
• No restrictions on vehicle mileage
• You can customize your car
• Potentially easier approval

Cons:

• High monthly payments
• Higher overall costs to own
• Potentially higher interest
• Down payment requirements

Securing a Subprime Auto Loan

If you want to secure a subprime auto loan, you have to set yourself up for success. First, we always remind drivers to improve their debt-to-income ratio, pay past-due debts, consolidate debt, and contact creditors if the information on their report is incorrect.

Improving Your Credit Score

Improving your credit score for subprime auto loans is a must. To get a subprime loan, you have to prove you can make on-time, reliable payments for your vehicle. This is non-negotiable for lenders.

• Keep your debt-to-income ratio under 35%
• Pay your bills on time (or early)
• Have credit utilization under 30%
• Check and correct your credit report
• Limit large purchases and credit applications
• Do not close old or paid accounts

Common Myths About Subprime Auto Loans

We want to share a couple of common myths about subprime auto loans and how you can potentially improve your chances when applying.

Myth: Higher Rates are Unavoidable

Although subprime auto loans will have higher rates than traditional auto loans, that doesn't mean you have to be paying 20% or more. Depending on your current credit outlook and the down payment you can put together, a subprime loan term may look better than you thought.

Myth: Only Bad Credit Scores Qualify

A subprime auto loan is not only for someone with a very low credit score. This is also a loan opportunity for people with little to no credit history, and can help kickstart your positive credit journey. The average approval score for a subprime auto loan ranges from 580 to 619, indicating that this is not exclusive to "bad" scores.

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Use Granite Hyundai's Credit Repair Program

If you are ready to buy or lease a car with Hyundai and want to improve your credit score, consider using Granite Hyundai's Credit Repair Program. We help find discrepancies on your credit report, give you tips for lowering your debt and general credit utilization, and we can approve lower-score drivers for in-house financing. Reach out with questions today, especially if you need help understanding subprime auto loans, or visit us in Somersworth, NH. We are open daily!