How to Identify Legitimate Subprime Auto Lenders

There’s a lot to think about when purchasing a new vehicle. Do you want a car, truck, or SUV? Gas or electric? How old? But maybe the most important thing is exactly what no one wants to consider – financing.

Most people can’t buy a vehicle without some sort of loan. If you have a lower credit score, it might be harder for you to get a loan and will probably have to accept a higher interest rate. There are people out there who will try to take advantage of you due to this. It’s often best to know the red flags of lenders.

Here’s how to identify legitimate subprime auto lenders.

Packed Payment Scam

Oftentimes, people with less-than-perfect credit will go to a dealership that offers in-house financing. While some of these organizations are legitimate, many of them are out to take advantage of people.

Packing payments is one of the most common ways that dealerships rip off customers. This is the practice of adding extra costs to the monthly payment—typically in smaller amounts—while telling buyers not to think about the long-term cost of the vehicle. Packed payments often lead to people paying thousands more over the course of their loan.

Dealership Financing Markup

Regardless of your credit, you’re probably going to get different interest rates from different lenders when you’re applying for an auto loan. Getting the lowest interest rate will help you pay less for your vehicle.

Financing markup is another way that dealerships take advantage of consumers. People see they can get subprime car loans directly from the place where they’re buying and assume that’s the best option. Then again, if you’re already paying a high interest rate, you might not think there’s a huge difference between 13 and 16 percent APR. But those few percentage points can add up to thousands over the course of a loan. Dealerships take the rate you’d receive from another financial institution and add up to 4 percent on top of that, which they then keep as profit.

Yo-Yo Financing and Spot Delivery

Be wary if a dealership offers you the ability to drive off the lot with a car when you haven’t gotten total, verified financing for the vehicle. Oftentimes, they’ll call you up a few days later to say you need to bring the car back because financing fell through. You’ll then have to pay more money or be threatened with repossession.

Don’t trust a dealership that lets you drive off before you’ve finalized all financing agreements. Get copies of documents to ensure your own safety.

Upfront Costs and Fees

Some lenders will claim that you need to pay before they’re able to get you financing for your vehicle. Don’t trust a company that tries to make you give them money before they’ve done anything for you. Legitimate car loan organizations won’t charge you anything until they’ve gone through with getting you your preapproval. When a lender says they need money ahead of time, it’s possible that they’ll take your payment and you’ll never hear anything from them ever again.

Loan Modification

Some people who already have auto loans will try to refinance if they’re having trouble paying the debt. When you’re desperate to save your car, you’ll do just about anything. Don’t work with organizations that say they’ll fix your problems if you pay them upfront. Just like with lenders that ask for fees, this kind of loan modification company is often a front, and will just take your money. Sometimes they’ll even tell you to stop making payments on your vehicle, which can exacerbate your situation.

Get Financing Before You Go to a Dealership

At the end of the day, it’s important for you to get financing before you go to a dealership to purchase a vehicle. You’re going to get a better rate this way. As already mentioned, when you try to finance through a dealership, they’re tacking on more to your interest payment, so they can make more money. People who need subprime auto loans need to be especially careful, as fraudsters will prey on their need for a vehicle. Do yourself a big favor and do some work ahead of time to secure preapproval with a legitimate subprime lender before you even think about looking at cars in person. Companies like RoadLoans are known for subprime car loans and are highly rated by customers.


Buying a vehicle isn’t something you do all the time. Because of this, most people aren’t familiar with the ways certain individuals might try to scam them. Keep these things in mind when you’re trying to tell the difference between legitimate and illegitimate subprime lenders.

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