Some people consider having a car a necessity. If you have a poor credit history, you may not be able to buy any car you want. However, many dealers offer guaranteed auto loans. Understanding how these loans work is essential before committing yourself to anything.
Guaranteed Auto Loans
A guaranteed auto loan is extended by an auto dealer to its customers. In most cases, the auto dealer deals with used cars. With this type of loan, you can get approved for financing, regardless of your credit history. You could have a recent bankruptcy, foreclosure or some other kind of blemish on your credit report and still get approved. This allows practically anyone to be approved for a car loan.
Requirements
With a guaranteed auto loan, the dealer will not look at your credit history. While your credit may not be important, the dealer will want to see that you have an adequate amount of income to make your payments. Most of these dealers require you to make a weekly payment, and the dealer will require a certain amount of income, depending on how big of a loan you are taking out. You have to prove that you are employed and make a certain amount of money to qualify.
How These Work
The idea of guaranteeing an auto loan to anyone might seem like it does not make much business sense. In reality, car dealers know that a certain number of these loans will go into default and they will have to repossess the cars. To compensate for these few bad customers, the dealer charges everyone a much higher interest rate.
Down Payment
Many guaranteed auto loans also come with a significant down payment requirement. By requiring a down payment, the lender can lower the risk associated with default. If customers have a large amount of cash in a car, they are much less likely to stop making payments and lose it. The lender might require you to come up with at least 20 percent before you can qualify for a loan.
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