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Guaranteed Approval Auto Loans

People are often confused by the phrase “guaranteed approval auto loans.” The words “guaranteed approval auto loans” on a sign mean that a dealer will issue an auto loan to anyone who meets a certain criteria.

A dealer that advertises guaranteed approval auto loans doesn’t automatically give an auto loan to anybody. Instead the dealer will make an auto loan available to anyone who meets the dealer’s standards for an auto loan.

This usually means that the dealer will issue an auto loan to any person who can prove that they have the income to pay off the loan. This usually means that the dealer will make an auto loan to anybody who can prove that they have a good job. It also means that the dealer will make auto loans to people with other sources of steady income such as pensions or Social Security benefits. 

Drawbacks to Guaranteed Approval Auto Loans 

Auto shoppers shouldn’t be surprised to learn that guaranteed approval auto loans come with some serious strings attached. The biggest drawback to guaranteed approval auto loans is the high interest rates charged on them.

The lender or dealer makes up for the risk of making auto loans to high risk customers such as those with low incomes or bad credit ratings by charging high interest rates on them. It is not uncommon for lenders to charge an interest rate of 15% or higher.

Another drawback to guaranteed approval auto loans is that the dealer may require a down payment or trade in. Many dealers will not make a guaranteed approval auto loan unless the borrower brings in a vehicle for trade in or agrees to a large down payment.

Some dealers will only make a guaranteed approval auto loan if the borrower agrees to a credit check. This can help the borrower because the dealer may give a person with a good credit record a lower interest rate. It can hurt a borrower because the dealer might charge a borrower with a bad credit rating a higher interest rate.

How Guaranteed Approval Auto Loans Work

Lenders are able to make guaranteed approval auto loans available because they are secured loans. Since the lender has the right to repossess the car in such a loan they can recover some of their risks if the borrower doesn’t pay.

This means that standards are somewhat lower than for traditional loans. Lenders are more willing to work with those with bad credit or low incomes.

Generally, a borrower will have to submit to income verification to get a guaranteed approval auto loan. This means that they will have to prove they can make the loan payments. Lenders will usually require the buyer to present proof of a job or banking records that verify income.

The amount of the auto loan will be limited by the amount of income the buyer has available. Many people will only be able to buy used cars or less popular newer models because of the income limits.

Dealers often only make guaranteed approval auto loans on cars they can’t sell through other means. This means that buyers seeking guaranteed approval auto loans will have a smaller selection of cars to choose from.