Buy Here Pay Here Brooklyn, NY

Subprime auto financing has not been around that long, in fact, according to the Merriam-Webster dictionary, the first know use of the word SUBPRIME was in 1995. Prior to the introduction of subprime auto lenders, used car buyers with bad credit had only one choice, to find a local car lot that would loan them money to finance a car on the auto dealerships lot. In the early 1990, subprime lenders came on the scene, and helped fill the void between financing for good credit and bad credit car financing at buy here pay here car lots.

History of Subprime Auto Lending

Some of first subprime lenders to emerge were GE Capital and Consumer Portfolio Service. These initial subprime auto lenders offered bad credit used car loans to buyers with good job time, these loans had short term loans and were for moderately priced used cars. Over time subprime auto lending became more competitive, as more and more lenders entered the subprime area a few things happened.

• Interest rates decreased
• Loan to value amounts increased
• Money down requirements decreased
• Debt to income ratios increased to 50%
• Payment to income ratios increased to 20%

This all sounds like good news for bad credit car buyers, who wouldn't want a bigger loan, at a lower car loan interest rates, with little or no money down? But the truth is, these lending policies trapped many Americans in a downward spiral of negative equity, debt and bad credit. For example, in the early 90's if you bought a used car with bad credit chances are you had 10% of the sales price as a cash down payment, had an interest rate in the 20% range, had a payment that did not exceed 15% of your income, and had 48 months to repay the car loan. Fast forward to 2008 and bad credit buyers were getting loans for up to 125% of the vehicles value with payments up to 20% of their income, for 72 months, with no money down.

If you have bad credit you should use subprime auto financing to improve your credit rating, not buy your dream car. Shorter term loans enable you to improve your credit rating, trade in, or refinance your auto loan, much quicker. If you've made your payments on time, your will qualify for better interest rates and terms through a traditional auto lender.

The Fall of Subprime Auto Lending

A year after the subprime mortgage meltdown subprime auto lending came to a screeching halt. Large subprime auto finance companies like Household Auto Finance (HSBC) promptly exited the high risk auto loan arena. The lenders that stayed around lowered their approvals to the sensible terms we saw in the 1990. Today, more finance companies are opening up and approving auto loans for people with bad credit. As competition increases and lenders try to "one up" each other to gain more business, we will see the sensibility and responsibility of auto lending deteriorate. Hopefully this time it will take more than twenty years to implode.