When standard auto loans are denied, subprime car loans are sought instead. Subprime creditors lend their money to those without at least a "Fair" rating for a credit score. It may seem like a generous second chance, but often this second chance comes at a steep price. Here are two reasons why someone with a bad or poor FICO score may want to reconsider getting a subprime car loan.
Massive Interest Rates
Every time a subprime lender allows subprime car loans, they take a risk of the borrower defaulting on the loan. To make up for this risk, the lender spikes the loan's interest rates. It will be quite a frustrating experience paying for deliberately elevated interest rates, especially after knowing what the normal interest rate should be. A person with a bad credit history probably won't have a choice in this matter; it's either take the subprime car loan or go without a vehicle.
A Lurking Repo Man
Vehicle repossession is another risk in accepting subprime car loans. Subprime lenders won't hesitate to get the vehicle pulled from the owner's possession. Just one late payment could mean the difference between driving and using public transportation. Some subprime car loan lenders have gotten especially furtive about how they go about repossessing vehicles. For example, they may provide a free GPS device in the purchased car. This implanted device can and will be used to hunt down the vehicle for a speedy repossession.
In October 16th, 2011, this practice got out of hand and ended with a Jacksonville car dealer facing a lawsuit by Florida's attorney general. Having a car repossessed will leave a long-lasting smear on a person's credit rating. Additionally, the harsh interest rates may make a loan seeker think twice about subprime car loans. Even with these potential problems, however, both borrower and lender know that having to deal with subprime car loans is still better than walking. If you're thinking of getting a subprime car loan, please proceed with caution.