Credit is an important element in financing. When you need money, you rely on credit. When you're buying property, you rely on credit. However, credit is something you can't build overnight. You can't have an outstanding credit status in just a month. So, how do you build your credit score? Some say, “Go to the bank, apply for a credit card, and pay your dues on time.”
While that's easier said than done, not all people can maintain bank accounts and credit cards in good standing. If you think about it, credit cards can be a heavy financial obligation. It’s easy to swipe for a purchase, but it’s actually hard to pay it faithfully every billing cycle. In the end, you might end up defaulting payments and incurring penalties. So overall, you’ll have a negative credit history.
So if that's the case, how can one build a credit reputation? Even if you're still studying or currently unemployed, Credit Acceptance can help you build credit. Whether you have a poor credit score or no credit score at all, Credit Acceptance has a credit building program for people like you. In this article, you'll learn how to build credit even if you have no or bad credit standing. Furthermore, this article will discuss how Credit Acceptance can help you finance your auto-loans with ease.
Building (and Rebuilding!) Credit With Credit Acceptance
Credit Acceptance Corporation is a company engaged in indirect subprime auto financing. They work with car dealers around the U.S. to provide auto financing to people with no or bad credit ratings. So if you want to buy a car, Credit Acceptance can help you find a dealer that doesn't require credit history. And if you work with them, you build or rebuild your credit standing.
Auto loans today from banks and credit unions are hard to obtain. It would almost be impossible to get a loan if you have an extremely low or no credit score at all. Credit scores are vital in obtaining financial services.
Bankers today are strict and stringent in giving out loans, especially to people who have a poor credit history. But with Credit Acceptance, they can help you find the best financing option for your car purchase.
At Credit Acceptance, you don't just get an auto loan from the Credit Acceptance Program. It is not as important to build your reputation with them as much as they enable you to build up a good or better credit score. The company reports to the three major credit bureaus: Equifax, TransUnion, and Experian. It means that you can build a good credit standing as long as you make timely and full payments on your auto loan.
But why is their relationship with the credit bureaus important? It's simple. When you apply for a loan in the future, your record will speak for itself. And where will lenders see this record? They'll check your credit history from the credit bureaus. Assuming you religiously paid your dues with Credit Acceptance's dealers, your credit history will cause most potential lenders to be more willing to give you a loan at competitive rates and terms.
How Does Credit Acceptance Help Build Credit?
As mentioned earlier, Credit Acceptance reports to the three major credit bureaus. Because of their relationship with them, Credit Acceptance can help you have a good credit history without going through the traditional process of building a good credit standing, which can take a long time and be a tedious process. Let's face it. Not everyone can easily maintain a credit card and keep up with all the payments, including interests and charges besides what you spend on. Not all people have the credit standing to obtain loans easily.
Take college students, for example. College students usually have no credit history, given that they're still studying. But, they need a vehicle. Banks and credit unions will likely reject a college student's car loan application because a student is not considered creditworthy enough.
But at Credit Acceptance, you can find an auto loan regardless of your credit standing. Credit Acceptance fills that gap for those who are caught in dire financial situations.
Rejected by the bank? Denied by credit unions? Without banks and credit unions, where could one get loans? And more importantly, how could one build a good credit history?
And that's where Credit Acceptance comes in. They open up more financing options for people who need it most. Forget about banks and credit unions. If your credit history is terrible let Credit Acceptance help you.
Does Credit Acceptance Extend Financing to Consumers?
Credit Acceptance is not a credit agency. They don't give loans to consumers. Instead, Credit Acceptance works with dealers across the U.S. who are willing to provide you with an auto loan without looking at your credit history. Instead, they will assist you in finding a dealer that can provide an auto loan for you.
Will You Be Eligible for Credit Acceptance?
At Credit Acceptance, everyone deserves a second chance at financing. The dealers doing business with Credit Acceptance can grant you an auto loan even if you have:
- Bankruptcy Chapter 7 or 13 (with court/trustee approval)
- Temporary ITIN
- Bad or No Credit History
- Outstanding auto loans
- Multiple repossessions
- Self-employment income
- Unemployment Income
What Kind of Auto Financing Terms Do I Get from Credit Acceptance?
So what kind of loan can they get for you? First and foremost, you need to remember that you're not in a creditworthy position. But there is hope and options through Credit Acceptance. There they can find loans for you even if you're not creditworthy. Before you get to know about the type of loan, let's first talk about prime rates and subprime loans as they are very important considerations worth your attention.
Prime Rates
When banks borrow money from each other, they use the prime rate. In finance, the prime rate is the safest rate a creditor can give to a debtor. Why safest? It's because there is a high assurance that the debtor can pay the creditor. You can also call the prime rate the federal funds rate, and this rate is set by the Federal Open Market Committee (FOMC). However, banks also use this rate for their “most creditworthy” clients.
The prime rate is important because it is the basis of all interest rates. Being the lowest interest rate that can be charged on loans, creditors charge interest higher than the prime rate depending on the risk associated with the debtor's credit standing.
Subprime Loans
At Credit Acceptance, you get a subprime loan. In the previous subsection, you learned that the prime rate is the lowest interest rate for creditworthy individuals. In this case, a subprime loan has an interest above the prime rate. As of writing, the federal rate is 3.25 percent. Any rate higher than that is considered subprime.
In determining the subprime rate, there's no concrete process to follow. Every lender has their way of assessing the rate. Some may give you higher rates, while some are eager to settle at lower rates. But here's the good thing about this. As you build a good credit history, you'll soon enjoy interest rates that are only a few percentage points away from the prime rate and eventually you may be eligible for the most attractive rate when you have successfully built up your credit score .
Pros and Cons of Using Credit Acceptance
Are subprime loans disadvantageous? Or do the benefits outweigh its cost? As discussed earlier, Credit Acceptance interest rates are subprime. In this section, you'll know the different pros and cons of getting a loan from Credit Acceptance's authorized dealers. Then, it's up to you to decide whether or not a subprime loan is right for you.
PROS
- Subprime loans are best for people with bad or no credit history. Getting additional financing can be challenging if you don't have a credit history or have a bad credit history. Through subprime loans, you can get additional funding without paying too much attention to your credit history.
- It helps people rebuild their credit. If you had a recent financial downfall and you're trying to recover, taking subprime loans is your best option. At Credit Acceptance, you can find a car dealer who's willing to give you a subprime loan. Then, all you need to do is pay on time and never miss a payment.
- There are more opportunities to access financing. Subprime loans open more doors for people who cannot access traditional bank loans. This type of loan is best for people who are self-supporting and for new business start-ups. So if you're unemployed and you need a car, Credit Acceptance can help you find a dealer.
CONS
- Lenders charge high-interest rates. In finance, higher risks mean higher rewards. Since you're not creditworthy due to negative credit history or no history at all, lenders see you as a high-risk debtor. Thus, they'll be inclined to charge higher interest rates to compensate for the risk they took.
- The likelihood of default is high due to the cost of financing. Higher interest rates mean high-interest payments. If interest payments are high, it means that only a portion of your monthly amortization gets deducted from the principal amount. For example, your monthly amortization is $2,500. If interest is $250 per month, the amount deducted to pay the principal will be $2,250 only.
- Lenders dictate most of the terms. In a subprime auto loan through Credit Acceptance's dealers, the dealer will provide the loan terms. You don't have the power to negotiate due to the state of your credit history.
Requirements for Subprime Financing
The pros and cons of subprime financing at Credit Acceptance have been laid out above. It is now up to you to decide whether this is the type of loan for you. But in essence, a subprime loan is neither advantageous or disadvantageous. It depends on you and the options available to you. But if you're still undecided, there's plenty of time for you to think.
Meanwhile, here are Credit Acceptance requirements for their assistance program:
- FICO credit score below 650 or none at all (based on the 96.1% of lenders).
- Must be 18 years old
- Must have a social security number
- Proof of income
- Settled down payment as determined by the dealer
Note: Credit Acceptance is just an intermediary between you and the dealer. Once they find a dealer for you, you’ll have to directly transact with the said dealer and negotiate the loan term.
Conclusion
Getting a loan can be extra challenging for people with bad or no credit scores. But at Credit Acceptance, you can get an auto loan without worrying too much about your credit history. This type of loan comes from the company's authorized car dealers. In other words, Credit Acceptance will help you find a dealer around your area to help you with your needs.
However, subprime auto loans have their own pros and cons. In the end, it’s about your available options and your commitment to pay your debt as they come due. So, have you decided already? If yes, visit creditacceptance.com now and start your credit approval today!
Aidan has been writing about personal finance for over 6 years. Prior to this, he worked as a Corporate Finance Analyst where he specialized in Due Diligence, Company Valuations and more. He is a CFA charterholder.
