Jul 10 2008
High Risk Car Loans Are Now Available
High Risk Car Loans
High risk car loans are loans which are considered as risky by the lenders because of the terms of the loan or because of the background of the borrowers. Let’s explore a few possibilities.
The first type of high risk car loan would be an unsecured loan. As some of us might already know, unsecured loans are given out without any collateral being pledged. In the case of secured loans, the borrower pledges collateral against the loan amount. This can be either assets that they have, such as real estate, jewelry or property. Or even important financial documents, such as stocks and bonds. Even the car that they are buying can be put up as collateral.
For the lenders, a secured car loan is substantially less risky because if the borrowers default, the lenders can take back possession of the collateral, in this case, the vehicle. Since unsecured loans do not have any such support, unsecured loans are considered high risk car loans.
Lenders are much stricter with their financial assessment when issuing unsecured loans. A proper scrutiny of credit records, the financial situation of the borrower, the income statements and proof of employment are done before an approval is given.
The second type of high risk car loans are those given to people with bad credit. In the past, people with bad credit used to find it very difficult to get loans. The situation is much better now with many lenders willing to offer loans to people with bad credit, but with many more hoops to jump through before approval.
Secured car loans are usually given to customers with some type of credit problem. A car loan can be a great opportunity for people with bad credit to improve their credit rating by responsible and timely repayment of the loan.
You must be very careful that you make the monthly payments on time as any default would impact your credit score badly and would seriously hamper your chances of getting any type of loan in the future. However, since these people already have a bad credit rating, lenders consider their chance of default higher than normal. That is why bad credit car loans come under the high risk category and a higher rate of interest is charged.
The third type of high risk car loan would be car loans given to people who have gone through bankruptcy in the recent past. Bankruptcy filing remains on your credit report for a period of seven years, and in some instances, up to ten years. So, if you have filed for bankruptcy in the past seven years, it will severely impact your chances of getting a car loan. There are lenders, however, who specialize in bankruptcy car loans and it would pay you to research a specialist in this area. To be considered, the specialist lender will evaluate the customer during his post bankruptcy period and check if he or she has made financially sound decisions during this period. If the lender feels that the person is on his or her way to recovery, they will often extend the loan, but with a high rate of interest.
More lenders have recently entered the high risk, or sub-prime, car loan market because of the competition for these type of customers. The same competition is driving the rates for high risk car loans lower. Thus, people with recent bankruptcy don’t need to worry as much about obtaining a bad credit car loan. Things are looking up.
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