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Subprime Auto Loans

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As you know, auto loans consist of funds borrowed to purchase a new or used car, truck, or SUV. Most auto loans resemble home mortgages in that the assets purchased using the borrowed money are also used to “secure” the loans as loan collateral. Should the borrowers default on these secured auto loans, they forfeit the ownership of the automobiles purchased using the borrowed money and must turn them over to the lenders. In general, lenders sell repossessed automobiles to try to make up their losses but cannot because automobiles quickly lose value once they are sold.

Subprime credit is defined as a credit score of less than 620. Although it is more difficult to finance a car with such credit, it is by no means impossible. In fact, we specialize in helping applicants with subprime credit get approved for financing. If you are ready to get started, simply complete your online application. It takes less than two minutes. Alternatively, if you would like to learn more about auto loans with subprime credit, read below.

What Are Subprime Loans?

Personal events relating to credit and credit transactions are recorded and reported on credit rating reports. Lenders are hesitant to lend to people with bad credit ratings because these potential customers have demonstrated previous difficulties with meeting their debt obligations and are considered much more likely to default on any loans that they may receive. Consequently, lending to customers with poor credit ratings is considered risky and thus undesirable.

Still, this does not mean that financial products such as mortgages and auto loans are unavailable for people with bad credit – only that their selection is greatly curtailed and the financial products available to them are likely to be less desirable than those that are made available to less risky customers. Loans that specifically target potential customers with poor credit ratings are called subprime loans because their loan ratings are considered to be below prime grade. Subprime loans are notable because they charge higher interest rates to compensate the lenders for taking on the additional risk of a potential default.

Subprime Auto Loans

Subprime auto loans are specifically targeted toward potential customers with poor credit ratings. Such loans were highly popular before the 2007 recession because lenders felt confident with the abundant funds at their disposal and made subprime loans to take advantage of the higher profits that could be earned on higher interest rates. In general, subprime auto loans had tighter and more restrictive loan terms than other auto loans. For example, subprime auto loan borrowers likely face harsher penalties for failing to pay on time and must make bigger initial down payments to reduce the risk to lenders. For this reason, these loans may also be referred to as high risk.

Choosing to Use Subprime Auto Loans

Despite their disadvantages, subprime auto loans are still useful because they may be the only financing option available to people who need auto loans with bad credit. People who want to borrow money to buy their automobiles may have no alternatives other than to pay fully upfront and in cash or seek loans from family and friends. Subprime auto loan borrowers should always carefully weigh their options to see if they are willing to pay higher interest rates for credit.


In sum, subprime auto loans are less desirable for customers because they charge higher interest rates and levy harsher repayment terms. However, customers can still find them useful because they are available to a much wider customer base than most forms of financing for automobiles.