Posts tagged ‘Subprime Auto Loans’

Subprime Auto Loans

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.

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Subprime Auto Loans are Increasing

Top car companies are enticing customers by approving more number of subprime auto loans. Companies like Chrysler and General Motors have used subprime auto loans to significantly improve their sales in the marketplace. Statistics suggest that about 20 percent and 16 percent of sales for Chrysler and General Motors respectively go to subprime customers having low credit score.

Over the past few years the auto sales in U.S.A have drastically reduced compared to the sales of last decade. The credit crunch due to recession was the main culprit in the loss of sales. Approval of loans for individuals with low credit score had become tight which resulted in fewer customers who actually purchased a car. In such tough conditions automobile companies turned towards various incentives to put a hold to the dropping sales.

Subprime auto loans are the auto loans provided to customers who have lower credit score than the required credit score. This helps car companies to get more customers and drive car sales. That’s the reason Chrysler and General Motors want more relaxation to approve subprime auto loans. Chrysler has already partnered Spanish bank Banco Santander to provide auto loans to customers who don’t qualify for prime loans. This is good news for all the customers having low credit scores.

All these efforts are being done to boost the automobile sales. Gaining more customers will help individual companies like General Motors and Chrysler to generate more profits and it will also help the automobile industry to contribute more to the U.S. economy.                         Bookmark and Share