A subprime auto loan is a kind of auto loan provided to borrowers with low credit scores. While providing auto loans lenders generally look for borrowers with high credit scores. But sometimes loans are also provided to borrowers with low or bad credit scores. This is when subprime auto loans come into picture.

It is possible for a borrower, who earlier had bad record to get approved for auto loan through subprime lending. These borrowers belong to the risk category and most of the lenders are unwilling to provide them loans. These borrowers are termed risky because of high outstanding debt, earlier defaults in loan payments, bankruptcy or non-existent debt history. Since the number of borrowers in the risk category has increased lenders of subprime auto loans have begun flourishing.

Subprime auto loans have high annual percentage rate or APR because of the risk factor involved. This is done to offset the risk that these borrowers carry and the lender feels more confident to provide the loan. Anyhow, subprime auto loan can be used to generate favorable credit score by making timely payments. And once borrowers have improved their credit score they can go for conventional loans with lower interest rate.

Auto loan modification can also be used to improve your credit score. Here, auto loan modification specialists negotiate with lenders on behalf of borrower to lower the interest rate on the existing loan and reduce the monthly car payments. This directly helps you improve your credit score since the borrower will be able to make timely car payments on his loan.