High risk car loans can result from situations like job loss, divorce, and high unemployment rates and can all place a person on shaky ground when it comes to creditworthiness. Having bad credit does come with its drawbacks as far as getting credit and taking out car loans. Fortunately, there are lenders out there who specialize in high risk auto loans. On the flip side, some of these lenders may engage shady business practices. Understanding how these lenders operate and what they look for in a borrower can go a long way towards securing a high risk auto loan without placing your financial future at risk.
Lending money, in and of itself, entails taking the risk of not being paid back whether dealing with a low risk or high risk borrower. Considering the overall pitfalls involved with lending money, high risk auto loans lenders must protect their interests through whatever resources they have available. Protecting their interests means doing the necessary credit check as well as tracking any negative or positive habits that appear in a person’s credit history.
Lenders for High Risk Auto Loans
Another way high risk car loan companies protect their interests is by using the car itself as a form of collateral. In the event a borrower stops paying on the car, the lender reserves the right to repossess it. Ensuring borrowers earn enough income to afford a particular car is another way lenders protect their interests. Fortunately, most people who find themselves in need of a high risk auto loan will repay on the loan, which is why high risk lenders take the chances they do.
High Risk Auto Loan Approval Criteria
What distinguishes traditional lenders from high risk lenders has to do with the type of criteria borrowers must meet in order to be approved for a car loan. Traditional lenders and some of the more lenient lenders rely heavily on a person’s credit score. Credit scores provide lenders with a birds-eye-view of a person’s overall financial trustworthiness. Most traditional lenders will refuse to lend to someone with a score below 540 since borrowers with this low a score have most likely built up a history of charge-offs, late payments and repossessions. At this point, borrowers fall within the “no credit” category, which is another term for high risk.
With high risk auto loan lenders, no credit financing is common, though strict conditions apply for loan approval. Lenders may request a minimum down payment amount of up to 20 percent. Most high risk lenders will charge a high interest rate due to the high risk nature of the loan. There are some lenders that operate as “buy here/pay here” establishments and handle their own financing. Considering these lenders pretty much answer to no one as far as financing institutions and car manufacturers go, borrowers may be at considerable risk of buying poor quality cars.
When approached in the right way, high credit auto loans can serve two purposes: getting you behind the wheel of a car and improving your overall credit status. Doing a thorough budget analysis in terms of your monthly income and cash flow, affordable car price ranges and ongoing car maintenance costs can help avoid winding up in the exact situation you’re trying to get out of now. Online car affordability calculators can be a great help when figuring how much you can afford towards a car loan.
Choosing a Lender
When shopping for auto loans, high risk auto loans borrowers in particular have to be especially careful. Some lenders specializing in high risk auto loans attempt to take advantage of prospective borrowers by offering low interest rates or low monthly payments. Ultimately, borrowers end up paying way too much for way too long on a car loan. This is where online quote comparisons and online auto loan calculators can come in handy.
When shopping online, any lender you’re considering should have their contact details posted clearly on their website. Also, it’s always a good idea to call them before visiting the lot to ensure it’s a legitimate business.
For financing purposes, credit unions are another way to go since they cater to their customers and oftentimes can offer the most competitive rates. Most credit unions will offer their members better rates and are more likely to look past your credit history than a traditional lender.
Credible High Risk Lenders
Finding a credible high risk lender is a matter of doing a little research and asking the right questions. Credible lenders have the best interests of their customers at heart. Helping people in bad credit situations get back on their feet lies at the core of their business. By taking this approach reputable high risk lenders get repeat business through word-of-mouth. Reputable lenders will be listed with the Better Business Bureau along with other consumer advocacy organizations. Many will also offer limited warranties on their vehicles when it’s in their power to do so.
A good resource for finding reputable high risk lenders is ValleyAutoLoan.com. ValleyAutoLoan.com offers a network of affiliated lenders and dealerships from which to choose. Borrowers can pull up needed information on each lender using a quick and easy search tool. This process makes the task of finding high risk auto refinancing and loans easy with all the needed information at your fingertips.