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High Risk Auto Loan

A high risk auto loan is exactly what the phrase implies: it is an auto loan where the lender takes a high risk. The high risk is that the borrower will not repay the loan and the vehicle will have to be repossessed.

Most high risk auto loans are made by used car and independent car dealers to low income people and those with bad credit. Generally high risk auto loans are made on cars that dealers would not be able to sell through other means such as used cars or unpopular models.

Persons with more income but bad credit may have to get high risk auto loans to purchase cars. Such an individual will probably have to get a high income auto loan to purchase a new car or a more expensive model of vehicle.

The High Cost of High Risk Auto Loans

Car dealers like to make high risk auto loans because they can make a lot of money off of them. The dealer or lender can charge a much higher interest rate on such loans.

Buyers will usually pay more for a high risk auto loan. Such loans often come with an interest rate of 15% or higher.

A buyer may also be required to put up a vehicle for trade in or make a large down payment to get high risk auto loan. Those who can’t bring in a down payment or trade may have a harder time getting such a loan.

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

How a High Risk Auto Loan Works

Lenders are able to make high risk 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.

A high risk auto loan is usually an income based loan this means that 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.  The amount of the high risk auto loan will be based on the borrower’s income.

This also means that a buyer will have to submit to income verification to get such a loan. They will have to present proof of income usually in the form of banking records. If a person can’t prove they have a good source of income such as a job, a pension or a government benefit payment they won’t be able to get a high risk auto loan.

One big advantage to high risk auto loans is that a buyer won’t have to submit to a credit check to get one.