Are Business Lenders Driven by Bad Credit Auto Loans?

During the recent recession, millions of Americans saw their credit scores plummet. Although the economic crisis has subsided, many of them are still living with bad credit, and they are experiencing difficulty securing loans.

However, due to increasing optimism about the economy, lenders are generally becoming more willing to offer loans to people with bad credit ratings.

Interest & Risk Resize

Here is a look at the business of bad credit auto loans in the United States….

Pros and Cons of Bad Credit Auto Loans

The main reason why vehicle buyers decide to take out a bad credit auto loan is because they do not qualify for ordinary auto financing.

Getting a bad credit auto loan enables them to get the funds they need to purchase their desired vehicles or prevent their current vehicles from being repossessed.

Another benefit of a bad credit auto loan is that it is very easy to obtain.

In some cases, a loan application can be approved within an hour and money can be forwarded within 48 hours. Obtaining a bad credit auto loan is also an effective way to rebuild credit.

However, those who are planning to get a bad credit auto loan have to be prepared to pay significantly higher interest rates.

Business lenders have to take more risk when they offer loans to people with bad credit, and therefore, they want to get higher returns on their money. Borrowers should try not to apply for several bad credit auto loans at the same time, because it can hurt their credit scores further.

Increased Demand for Bad Credit Auto Loans in the U.S.

The continuous growth of the U.S. auto market is keeping the demand for bad credit auto loans on the rise.

According to a report released by Experian Automotive, about 27 percent of the total amount of loan for new cars in the first half of 2013 was taken by people who had bad credit scores.

Meantime, Moody’s reported (for Q3) that business lenders signed off on more poor-credit borrowers, as the volume of subprime auto loans increased some 9 percent at credit unions, while there was a 1 percent uptick at banks.

A growing population of borrowers with bad credit ratings and tougher competition from auto manufacturers’ financing divisions are the main reasons why the demand for bad credit auto loans is expanding.

How Bad Credit Auto Loan Providers Respond to the Rise in Demand

Giving out more bad credit auto loans means higher costs for business lenders.

In order to maintain a high level of profitability, many bad credit auto loan providers are offering extended-term auto loans. By doing so, they can generate more profits from the interests accrued on the loans.

Borrowers can also benefit from long-term loans, because they enable them to make lower monthly payments.

Seeing that many car buyers are trying to get bad credit auto loans, some auto dealerships have set up a lending wing to provide such loans for their customers, and they are using auto and loan search websites to promote their bad credit auto loan services.

It may take a considerably long time for bad credit consumers to raise their credit scores to a level that is high enough for them to obtain traditional financing.

In the meantime, bad credit auto loan businesses are making it possible for them to purchase the vehicles they want.

About the Author: John McMalcolm is a freelance writer who writes on a wide range of subjects, from social media marketing to Cloud computing.

2 thoughts on “Are Business Lenders Driven by Bad Credit Auto Loans?

  1. Thanks for sharing the pros and cons of bad car loan. The information shared in this page is really helpful for us. The bad car loans will helps to buy cars for those who are financially back. Keep share more information like this in the upcoming posts too.

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