Subprime Auto Loans: 3 Dangers

Many people are forced to use subprime auto loans as a means to buy a car because of their poor credit history. The subprime lending market is there for those that have made some financial mistakes and have blemishes on their credit report. While it can be beneficial to some, it is also known for causing its fair share of problems. Getting involved with a subprime auto lender could compound your financial problems if you are not careful. Here are a few dangers that you need to watch out for with subprime auto loans. 

1. Financial distress

One of the worst things about subprime auto loans is that they are always going to have a higher interest rate than other types of loans. When you are paying a substantially higher rate of interest than everyone else, this means that your payment is going to be higher in most cases. When you are having financial trouble, you do not need another payment weighing you down. This can be especially troubling if the payment is a large one. When you agree to a subprime auto loan, you could be tying your hands financially for the future. A huge car payment can be the source of significant financial distress.

2. Risk Losing Your Car

When you deal with subprime auto loans, there is a good chance that you will have your car repossessed at some point. Since the payments are often higher than you can afford over the long term, many borrowers get in the habit of missing payments as a result. When you miss enough payments on your auto loan, they are going to come and repossess the car. You will lose your primary means of transportation, which can lead to even bigger problems. When you don't have a car to get to work, your job is on the line as well.

3. Damage Credit Further

Since there is a higher risk of repossession with subprime auto loans, there is also a higher risk of damaging your credit even worse than it already is. When you have a car repossession on your credit history, it will drastically affect your credit in every way. You will not be able to get a loan for another car or most likely anything else. A repossession will stay on your credit file for as long as seven years in most cases. Therefore, you will be living on a cash basis for the next seven years if this happens to you. Your credit is one of the most important things that you have. When you sign up for a subprime auto loan, you do not plan on being in the "bad credit" category for your entire life. However, with the way they have it set up, it often leads you to stay there for a lot longer than you would like. 

blog comments powered by Disqus